Answer:

1. Due to liberalization, states are getting relatively higher share of investment from the market. The states which created the necessary infrastructure for investments have outpaced those states which failed to do so. It has led to inter-state inequality regional disparities. Thus, centre, now needs to focus on the development of under-developed states to ensure equitable development and counter interstate migration.

2. Earlier, states had been demanding that more number of taxes be shared with them by the centre, as they used to share only Income tax and Union Excise Duties. After the 80th Amendment Act, 2000, the center shares all the taxes except those provided under Art 268, 269 and the cesses and surcharges under Art 271. Thus, now the states, though much satisfied, demand only a higher proportion rather than more number of taxes.

3. After the passing of 73rd/74th Constitutional Amendment Acts, states are required to share the revenue with the local govt. It has led to a higher demand of financial resources from the centre.

4. The introduction of Value Added Tax (VAT) in 2005 was a landmark development in the history of tax reforms. Entrusting the decision powers in this regards to the Empowered Committee of State Finance Minister was a significant step toward the realization of cooperative federalism without compromising the autonomy of the states.

5. Although GST is expected to be advantageous for both the center and the states,, but states are concerned about losing their power of taxing the goods and on the other hand are already demanding power to tax the services.

6. Implementing the FRBM act, though partially, had led to increased cooperation between the states and the union govt.

7. We can also write about the role of the Planning Commission. It tilts the balance of power towards the Center. There are increasing voices of concern from the States regarding the politicization of Planning Commission. Some have also argued that it may be better to do away altogether with the planning Commission in this age of liberalization and irrelevance of central planning.

The economic reforms that have taken place have brought the centre and the states nearer by strengthening both the governments. In future, the financial and economic spheres are expected to further strengthen federalism.