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

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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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
Handle: RePEc:ays:ispwps:paper05141
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Keywords: india; intergovernmetnal; fiscal transfers; government expenditures;

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  1. Santiago Lago-Peñas, 2005. "Evolving Federations and Regional Public Deficits: Testing the Bailout Hypothesis in the Spanish Case," Environment and Planning C, , vol. 23(3), pages 437-453, June.
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  4. 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.
  5. 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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  11. Jorge Martinez-Vasquez & Jameson Boex, 2001. "Russia's Transition to a New Federalism," World Bank Publications, The World Bank, number 15248, September.
  12. 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.
  13. Teresa Daban Sanchez & Steven A. Symansky & Gian M 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.
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  16. Webb, Steven B., 2004. "Fiscal responsibility laws for subnational discipline : the Latin American experience," Policy Research Working Paper Series 3309, The World Bank.
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Cited by:

  1. 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.
  2. 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.
  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.
  4. United Cities and Local Governments, 2011. "Local Government Finance," Books, Edward Elgar Publishing, number 14696.

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