State-Level Fiscal Reform in India: Strategy and its Implications

A C K Nambiar

The IUP Journal of Public Finance, 2007, vol. V, issue 4, 7-17

Abstract: Though fiscal reforms at the state level have been an important component of economic policy reforms, the finances of the states continued to deteriorate even in the 1990s. It was in this backdrop the Eleventh Finance Commission recommended a fiscal reform incentive scheme. The Twelfth Finance Commission too evolved schemes for fiscal correction of states. As required by now almost all the states have enacted the Fiscal Responsibility Bill. In the medium-term the objective is to contain the revenue deficit. Hence, serious efforts are being made by the states to redeem their fiscal situation. The paper attempts to review the progress, the strategy, and its implications. The results indicate that a secular trend in decline in the deficit is yet to emerge. So also the performance of states is widely at variance. Given the current tempo while a number of states will fulfill the target, others in all likelihood may fail to fulfill the target. So also the strategy of states appears to be ill-conceived. The revenue effort of the states cannot be said to be very impressive. On the expenditure side, the developmental outlay on plan and non-plan account has come to suffer, and this will have implications on the growth prospects of the states.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjpf:v:05:y:2007:i:4:p:7-17

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