The evidence lies in the rapid expansion of State Development Loans (SDLs), which have emerged as a key financing instrument for States’ day-to-day spending needs. SDLs constituted roughly 35% of the State’s revenues on average during this period, even as nominal tax devolution rose. This points to a steady erosion of States’ fiscal autonomy, with potentially serious macroeconomic consequences as debt-to-GSDP ratios rise while assured revenue streams weaken. If debt, rather than devolution, becomes the primary shock absorber in India’s federal system, fiscal sustainability itself comes under strain. India needs higher effective devolution, and a reworking of horizontal devolution criteria to give greater weight to tax effort and efficiency.