Federalism and fiscal reform in India

Govinda Rao and Tapas Sen ()

Working Papers from National Institute of Public Finance and Policy

Abstract: This paper attempts to analyse the experience of incentivising economic reforms at the state level through central transfers to states. It reviews the experiences of the central government introducing incentives for reform directly through various specific purpose transfers as well as the incentive schemes recommended by various Finance Commissions. The incentive schemes directly introduced by the central government include, accelerated irrigation benefit programme, accelerated power development and reform programme, Jawaharlal Nehru Urban Renewal Mission, education and health sector reforms. The reforms recommended by the Finance Commissions include incentivising tax reforms and fiscal restructuring and consolidation. The review of the experiences of Indian fiscal federalism shows that the incentivising reforms have neither been an unqualified success nor have they been a total failure. There are interesting lessons to be learnt from the experiences for both designing the incentive schemes and implementing them. The paper summarises the lessons of experience. While incorporating these in designing and implementing incentive schemes can be useful in the short and medium term, what matters in the long run is the political incentive for reforms.

JEL-codes: H30 H71 H74 H77 (search for similar items in EconPapers)
Pages: 28
Date: 2011-02
New Economics Papers: this item is included in nep-cis and nep-pbe
Note: Working Paper 84, 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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