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The Effect of Intergovernmental Transfers on Public Services in India

Govinda Rao ()

Working Papers from National Institute of Public Finance and Policy

Abstract: India has witnessed impressive growth performance since the market based re-forms were introduced in 1991. However, its regional spread has been uneven. Consid-ering the fact that over 63 per cent of the population lives in economically lagging states and they have over 67 per cent of children in the age group 0-14 demographic dividends can be realised only when a system of intergovernmental transfers is designed to offset their fiscal disabilities. The present paper analyses the design and implementation of gen-eral and specific purpose transfers in India. While the general purpose transfers are given to enable the States to provide comparable levels of services at comparable tax rates. However, given the large differences in the revenue capacities of the states with the rich-est large state having five times the per capita income of the lowest, it is politically infea-sible to offset the differences in revenue capacities completely. Therefore, the specific purpose which are meant to ensure minimum standards of meritorious services with high degree of externalities are extremely important. However, the analysis shows that there are too many specific purpose transfers, they are poorly targeted and inclusion of multiple objectives in each of the specific purpose transfers makes the compliance by the States difficult. The objective of inclusive development requires that the transfer system should be reformed.

Keywords: Government Expenditures on health; Government expenditures on education; State and local budget and expenditures; Intergovernmental relations (search for similar items in EconPapers)
JEL-codes: H51 H52 H72 (search for similar items in EconPapers)
Pages: 31
Date: 2017-12
New Economics Papers: this item is included in nep-pbe
Note: Working Paper 218, 2017
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