One defining feature of any federalist process is the pattern of intergovernmental fiscal flows. This work is an attempt to uncover the logic behind the pattern of fiscal flows in the Russian Federation soon after the break up of Soviet Union. The general consensus seemed to be that there is no discernible pattern to these flows and at best they are determined purely by politically troublesome behavior by the regional players. The main finding here is that initial conditions are important in determining the redistributive pattern and that there is a sound economic and political logic to this pattern. This study highlights the importance of diversity in industrial structures across Russian regions in this highly industrialized and interdependent economy. The sudden change in the exchange environment from a planned economy to a market based economy coupled with the decentralization process shifted the focus to the inherited industrial structure of the region. Regions were variously equipped to survive in a market based economy without any centralized coordination. The federal government seeks to maximize support across regions by selecting the optimal redistributive shares.