The state of Nagaland was created on political necessity in 1963 as the sixteen states of India. Hence, to finance economic development, the patterns of federal transfers were quite liberal to the state of Nagaland in the beginning of planning era. However, in course of time, the pattern of federal transfers kept changing and state's finances were tightened whereby the state was compelled to adequately mobilize its own internal resources. The fact of the matter to be noted here being; inspite of the pressure coming from centre to improve its fiscal health, the state of Nagaland could not do much headway till today as expected owing to poor resource abundance coupled with political instability and law and order problems. The present study would therefore, enlightened the constraints and prospects of state's own internal resources and dependency on Federal transfers which would be helpful for the state government as well as for the upcoming scholars references.