Development Agencies’ Support to States for Fiscal Reforms in India

Ratna Vadra

The IUP Journal of Public Finance, 2011, vol. IX, issue 4, 56-79

Abstract: More than a decade after the launch of the reform process, it seems that significant attention is still not paid to the fiscal reforms at state level. Despite several years of fiscal consolidation effort, large and persistent fiscal deficits remain. India’s overall government spending, currently around 33% of GDP (center and states together), will need to be brought down substantially as a proportion of national product in order for India to achieve its reform goals of macroeconomic stability and long-term rapid growth. The states’ increasingly large deficits mean their fiscal policy is an important factor not only in their own performance but in India’s overall fiscal sustainability. More and more states are now turning to fiscal reforms as the only way out of the financial crisis they are facing. Besides the support of center, states are also receiving financial and technical support from various development agencies like World Bank and Asian Development Bank. The basic objective of the paper is to study whether the support given by these developmental agencies like World Bank will prove fruitful for the development of states and which states in India are the major beneficiaries. The support from development agencies is for a limited time period. Will the support of development agencies be the only way for states to improve their fiscal situation? The fact is that the states have to boost up their own efforts and create new avenues for generating finance.

Date: 2011
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