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Impact of Fiscal Transfers Policy on Regional Growth Convergence in India

Author

Listed:
  • K. R. Shanmugam

    ((Corresponding Author)Director and Professor, Madras School of Economics)

  • K. Shanmugam

    (Chief Secretary of Government of Tamil Nadu and Senior Research Fellow of Madras School of Economics)

Abstract

This study is an attempt to empirically analyze the effect of fiscal transfers on growth and regional growth convergence during 2005-2019, using the standard growth convergence model for panel data. Results indicate the growth convergence across Indian States. The regional income gaps reduced at a rate of 17.7-31.9 percent per annum. The fiscal transfers contribute to the growth of 22 out of 29 States and also contribute significantly to the convergence. Moreover, there is strong evidence for convergence across General Category States and across Special Category States, indicating club convergence. The average income growth is higher in Special Category States and higher in post global crisis period. It is our hope that these results will be useful to policymakers and other stakeholders to take appropriate strategies to design fiscal transfer policy such that it will speed up the convergence process.

Suggested Citation

  • K. R. Shanmugam & K. Shanmugam, 2022. "Impact of Fiscal Transfers Policy on Regional Growth Convergence in India," Working Papers 2022-236, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2022-236
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    References listed on IDEAS

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    More about this item

    Keywords

    Growth Convergence; Fiscal Transfers; Indian States; Panel Data Methods;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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