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Synopsis The centre-state economic relations have assumed special significance in the context of the states asking for greater decentralization of powers to manage their economies. The economic reforms programme, emergence of strong regional parties, the governance through political coalitions, and the constitutional amendments to empower the local bodies, have state relations. The resources are short and the pattern of expenditure of the centre and the states is such that there is not enough left for the needed investment in social and physical infrastructure. There are wide disparities as between the states and even within the states and also conflicting interests between the regions and the special problems of the low income states. There is need for augmenting the resources both of the centre and the states and the cake has to grow before the slices can become bigger. This requires faster growth of the economy and restructuring the expenditure of the centre and the states, which is hampered largely by the pulls and pressures in the political arena. It is time that the major political parties develop a broad consensus at the centre and the states and blend good economics with politics. This is the background in which the centre-state relations are to be considered.