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Synopsis A very few states in India, even after more than five decades of planning for development can hardly claim to have achieved the path of self-sustained development. Inter-state disparities have persisted in spite of large constitutionally provided statutory transfers through the finance commission and non-statutory transfers through the planning commission, central ministries and financial institutions. The fiscal disadvantaged states have lagged behind so much so that these are now termed as BIMARU states instead of backward states. But no one has ever gone to the genesis of the problem. Today there is even a lurking voice from the developed states that the issue of equity should be bidden a farewell and instead they should be rewarded for their better fiscal management. An important issue before the twelfth finance commission, headed by Dr. C. Rangarajan, is how to weigh equity vs. efficiency. In the present study the development of a state does not represent simply its per capita income. It rather refers to a comprehensive index of development prepared by stimulating 18 indicators of development. Then how much additional public expenditure is required for a state to cross the below average status is another area of concern of the present study. This has been juxtaposed with relative fiscal capacity of the states to finance the required level of public expenditure. Therefore, the study is useful for instituting special fund for the development of states. Then how has the transfer of resources from the finance commission, planning commission and the central ministries made any dent on the inter-state disparities? How far are the different criteria adopted by the finance commission responsible for the unabated growth of inter-state disparities? Another area of concern of the present study is the transfer of financial resources to different states from the non-budgetary sources like banks and the other financial institutions.