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India: Fiscal Condition of the States, International Experience,and Options for Reform: Volume 1

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Abstract

India is a Union of 28 States, two Union Territories with legislatures, and five Union Territories without legislatures. The 7th Schedule of India’s Constitution provides for a separate State List, which enumerates exclusive legislative and executive authority that lies with state governments. The State List entrusts major responsibilities in the areas of human and physical development to the states. These responsibilities require major expenditures by the states, but the tax revenue sources assigned to the states, although they have not been fully used, are not sufficient to meet these expenditure responsibilities. The resulting fiscal imbalances of the states is addressed through a complex system of intergovernmental transfers in various forms and through several other channels, including borrowings. Over the years, in practice, the States of India have sought to finance their increasing needs for expenditures through different forms of transfers from the Union Government and loans, rather than by raising additional tax revenues and/or charging for services delivered. This has resulted in the states running large revenue and fiscal deficits and accumulating potentially unsustainable debt burdens. In this process, most states have compromised budgetary discipline, resorted to off-budget forms of borrowings, and accumulated large contingent liabilities, with the attendant risks of default. The lack of fiscal discipline among the states is symptomatic of a flawed intergovernmental fiscal system. In addition to the lack of aggregate fiscal discipline, the level and quality of services delivered by the states are well below where they ought to be with the money actually spent. There is much evidence of inefficient service delivery. For example, many states have high rates of illiteracy, particularly among women, and high infant and maternal mortality rates. In addition, the quality of economic services provided by the states, particularly electricity and transportation, is poor.

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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper05141.

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Length: 162 pages
Date of creation: 01 Jun 2005
Date of revision:
Handle: RePEc:ays:ispwps:paper05141

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Keywords: india; intergovernmetnal; fiscal transfers; government expenditures;

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References

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  1. Mariano Tommasi & Miguel Braun, 2002. "Fiscal Rules for Subnational Governments. Some Organizing Principles and Latin American Experiences," Working Papers 44, Universidad de San Andres, Departamento de Economia, revised Mar 2002.
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  4. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR;CES;MSH, vol. 13(27), pages 487-545, October.
  5. Santiago Lago-Pe�as, 2005. "Evolving federations and regional public deficits: testing the bailout hypothesis in the Spanish case," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 23(3), pages 437-453, June.
  6. Jorge Martinez-Vasquez & Jameson Boex, 2001. "Russia's Transition to a New Federalism," World Bank Publications, The World Bank, number 15248, February.
  7. Eckhard Wurzel, 1999. "Towards More Efficient Government: Reforming Federal Fiscal Relations in Germany," OECD Economics Department Working Papers 209, OECD Publishing.
  8. Webb, Steven B., 2004. "Fiscal responsibility laws for subnational discipline : the Latin American experience," Policy Research Working Paper Series 3309, The World Bank.
  9. Richard Bird & Pierre Gendron, 1998. "Dual VATs and Cross-Border Trade: Two Problems, One Solution?," International Tax and Public Finance, Springer, vol. 5(3), pages 429-442, July.
  10. Roy Bahl & Eunice Heredia-Ortiz & Jorge Martinez-Vazquez & Mark Rider, 2005. "India: Fiscal Condition of the States, International Experience,and Options for Reform: Volume 2," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper05142, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  11. World Bank, 2004. "State Fiscal Reforms in India : Progress and Prospects," World Bank Other Operational Studies 14609, The World Bank.
  12. Jorge Martinez-Vazquez & Andrey Timofeev & Jameson Boex, 2006. "Reforming Regional-Local Finance in Russia," World Bank Publications, The World Bank, number 6925, February.
  13. Teresa Dabán Sánchez & Steven A. Symansky & Gian-Maria Milesi-Ferretti & Enrica Detragiache & Gabriel Di Bella, 2003. "Rules-Based Fiscal Policy in France, Germany, Italy and Spain," IMF Occasional Papers 225, International Monetary Fund.
  14. Richard Bird & Pierre-Pascal Gendron, 2000. "CVAT, VIVAT, and Dual VAT: Vertical ``Sharing'' and Interstate Trade," International Tax and Public Finance, Springer, vol. 7(6), pages 753-761, December.
  15. Yasuyuki Sawada, 1999. "Community Participation, Teacher Effort, and Educational Outcome: The Case of El Salvador's EDUCO Program," William Davidson Institute Working Papers Series 307, William Davidson Institute at the University of Michigan.
  16. Michael Kremer & Nazmul Chaudhury & F. Halsey Rogers & Karthik Muralidharan & Jeffrey Hammer, 2005. "Teacher Absence in India: A Snapshot," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 658-667, 04/05.
  17. Shah, Anwar & Thompson, Theresa, 2004. "Implementing decentralized local governance: a treacherous road with potholes, detours, and road closures," Policy Research Working Paper Series 3353, The World Bank.
  18. Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
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Cited by:
  1. Roy Bahl & Eunice Heredia-Ortiz & Jorge Martinez-Vazquez & Mark Rider, 2005. "India: Fiscal Condition of the States, International Experience,and Options for Reform: Volume 2," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper05142, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Richard M. Bird, 2012. "Subnational Taxation in Large Emerging Countries: BRIC Plus One," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1201, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Roy Bahl & Sally Wallace & Musharraf Cyan, 2008. "Pakistan: Provincial Government Taxation," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0807, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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