The Planning Commission’s mindset is to argue that disparities are a serious problem and need to be addressed through effective cross-subsidisation of backward states by more forward ones. While disparities and resultant socio-economic tensions are indeed a problem and India (unlike China) has a polity where tensions do become explicit, there is no evidence to show that fiscal transfers help. This is in addition to the political economy of resenting perceived cross-subsidisation of inefficiency by efficiency, a problem that became acute in course of the Eleventh Finance Commission’s recommendations. There is no substitute for improving physical and social infrastructure and governance in laggard states. It is hypothesised that laggard states will eventually learn through the losing-out process and if nothing else, voters will throw out non-performing governments. There is no evidence yet to indicate that voting behaviour reflects such rationality. The moral seems to be that India will have to live with disparities unless agricultural reforms take place. Initial agricultural reforms led to broad-based income and consumption growth in China. The salvation for backward states lies not in manufacturing, IT and other buzzwords, but in old-fashioned agriculture.