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Designing Transfers Policy with Normatively Determined Revenues and Expenditures of State Governments 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 addresses an important policy issue of designing equalisation transfers from the union government of India to the states. It empirically measures the own revenue efficiency and potential of General Category and Special Category States using the frontier approach for panel data. It also analyses the effect of transfers on states’ own revenue and its components. Results indicate a strong crowding-out effect of transfers in General Category States and a strong crowding-in effect in Special Category States. Amounts of additional transfers required to provide equal level of public services for all 29 States in four alternative scenarios range between ?1072 billion and ?15,948 billion. The range is based on alternate benchmarks of fiscal capacities and expenditure needs. We hope that these results will be useful to policymakers and other stakeholders to design appropriate fiscal transfer strategies such that all citizens can avail a standard level of public services in India.

Suggested Citation

  • K. R. Shanmugam & K. Shanmugam, 2022. "Designing Transfers Policy with Normatively Determined Revenues and Expenditures of State Governments in India," Working Papers 2022-237, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2022-237
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal equalisation; expenditure needs; fiscal capacity; Indian states;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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