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Federalism and Economic Development in India: An Assessment

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  • Singh, Nirvikar
  • SRINIVASAN, T N

Abstract

This paper examines India’s federal system in the context of prospects for India’s future economic growth and development. After a brief review of India’s recent policy reforms and economic development outcomes, and of the country’s federal institutions, the analysis focuses on the major issues with respect to India’s federal system in terms of their developmental consequences. We examine the impacts of tax assignments, expenditure authority and the intergovernmental transfer system on the following aspects of India’s economy and economic performance: the quality of governance and government expenditure, the efficiency of the tax system, the fiscal health of different tiers of government, and the impacts on growth and on regional inequality. In each case, we discuss recent and possible policy reforms. We make comparisons with China’s federal system where this is instructive for analyzing the Indian case. Finally, we provide a discussion of potential reforms of aspects of India’s federal institutions.

Suggested Citation

  • Singh, Nirvikar & SRINIVASAN, T N, 2006. "Federalism and Economic Development in India: An Assessment," Santa Cruz Department of Economics, Working Paper Series qt2qs4h3t9, Department of Economics, UC Santa Cruz.
  • Handle: RePEc:cdl:ucscec:qt2qs4h3t9
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    1. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    2. Singh, Nirvikar, 2007. "Fiscal Decentralization in China and India: Competitive, Cooperative or Market Preserving Federalism?," Santa Cruz Department of Economics, Working Paper Series qt76d8b4hm, Department of Economics, UC Santa Cruz.
    3. Govinda Rao, 2006. "Fiscal Federalism in Planned Economies," Chapters, in: Ehtisham Ahmad & Giorgio Brosio (ed.), Handbook of Fiscal Federalism, chapter 9, Edward Elgar Publishing.
    4. M. Govinda Rao & Nirvikar Singh, 2007. "The Political Economy of India's Fiscal Federal System and its Reform," Publius: The Journal of Federalism, Oxford University Press, vol. 37(1), pages 26-44, Winter.
    5. Singh, Nirvikar, 2006. "Services-Led Industrialization in India: Assessment and Lessons," Santa Cruz Department of Economics, Working Paper Series qt8jn2b8z6, Department of Economics, UC Santa Cruz.
    6. Dani Rodrik & Arvind Subramanian, 2005. "From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 193-228, September.
    7. M. Govinda Rao & R. Kavita Rao, 2005. "Trends and Issues in Tax Policy and Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 2(1), pages 55-122.
    8. S. Mahendra Dev, 2008. "India," Chapters, in: Anis Chowdhury & Wahiduddin Mahmud (ed.), Handbook on the South Asian Economies, chapter 1, Edward Elgar Publishing.
    9. Roy Bahl & Jorge Martinez-Vazquez, 2003. "Fiscal Federalism and Economic Reform in China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0313, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    10. Gianluigi Galeotti & Albert Breton, 1986. "An Economic Theory of Political Parties," Kyklos, Wiley Blackwell, vol. 39(1), pages 47-65, February.
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    Cited by:

    1. Rongili Biswas & Sugata Marjit & Velayoudom Marimoutou, 2010. "Fiscal Federalism, State Lobbying And Discretionary Finance: Evidence From India," Economics and Politics, Wiley Blackwell, vol. 22(1), pages 68-91, March.
    2. Boris I. Alekhin, 2020. "Regional Tax Autonomy and Budget Balances," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 5, pages 114-127, October.
    3. Boris I. Alekhin, 2020. "Vertical Fiscal Imbalance and Regional Economic Growth," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 6, pages 39-53, December.
    4. Han, Li & Kung, James Kai-Sing, 2015. "Fiscal incentives and policy choices of local governments: Evidence from China," Journal of Development Economics, Elsevier, vol. 116(C), pages 89-104.
    5. Nirvikar Singh, 2007. "The dynamics of reform of India’s federal system," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(01), pages 22-31, April.
    6. Abhishek Anand & Lekha S. Chakraborty, 2016. "'Engendering' Intergovernmental Transfers: Is There a Case for Gender-sensitive Horizontal Fiscal Equalization?," Economics Working Paper Archive wp_874, Levy Economics Institute.
    7. Singh, Nirvikar, 2006. "Services-Led Industrialization in India: Assessment and Lessons," Santa Cruz Department of Economics, Working Paper Series qt8jn2b8z6, Department of Economics, UC Santa Cruz.
    8. Bharatee Dash & Angara Raja, 2014. "Do political determinants affect revenue collection? Evidence from the Indian states," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 253-278, September.
    9. Yongzheng Liu & Bingyang Lv & Hang Tai & Chenping Yang, 2018. "Fiscal Incentives and Local Tax Competition: Evidence from China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1817, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    10. Weingast, Barry R., 2009. "Second generation fiscal federalism: The implications of fiscal incentives," Journal of Urban Economics, Elsevier, vol. 65(3), pages 279-293, May.

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    More about this item

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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