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Federalism and fiscal reform in India

Author

Listed:
  • M. Govinda Rao

    () (National Institute of Public Finance and Policy)

  • Sen, Tapas K.

    () (National Institute of Public Finance and Policy)

Abstract

This paper attempts to analyse the experience of incentivising economic reforms at the state level through central transfers to states. It reviews the experiences of the central government introducing incentives for reform directly through various specific purpose transfers as well as the incentive schemes recommended by various Finance Commissions. The incentive schemes directly introduced by the central government include, accelerated irrigation benefit programme, accelerated power development and reform programme, Jawaharlal Nehru Urban Renewal Mission, education and health sector reforms. The reforms recommended by the Finance Commissions include incentivising tax reforms and fiscal restructuring and consolidation. The review of the experiences of Indian fiscal federalism shows that the incentivising reforms have neither been an unqualified success nor have they been a total failure. There are interesting lessons to be learnt from the experiences for both designing the incentive schemes and implementing them. The paper summarises the lessons of experience. While incorporating these in designing and implementing incentive schemes can be useful in the short and medium term, what matters in the long run is the political incentive for reforms.

Suggested Citation

  • M. Govinda Rao & Sen, Tapas K., 2011. "Federalism and fiscal reform in India," Working Papers 11/84, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:11/84 Note: Working Paper 84, 2011
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    File URL: http://www.nipfp.org.in/newweb/sites/default/files/wp_2011_84.pdf
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    References listed on IDEAS

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    1. Chakraborty, Pinaki & Mukherjee, Anit K. & Amar Nath, H.K., 2010. "Interstate distribution of central expenditure and subsidies," Working Papers 10/66, National Institute of Public Finance and Policy.
    2. Singh, Nirvikar & Rao, Govinda, 2006. "Political Economy of Federalism in India," OUP Catalogue, Oxford University Press, number 9780195686937.
    3. Pierre Salmon, 2006. "Horizontal Competition Among Governments," Chapters,in: Handbook of Fiscal Federalism, chapter 2 Edward Elgar Publishing.
    4. Bird,Richard & Gendron,Pierre-Pascal, 2011. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9781107401440, December.
    5. M. Govinda Rao & Pinaki Chakraborty, 2006. "Multilateral adjustment lending to states in India: Hastening fiscal correction or softening the budget constraint?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, pages 335-357.
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    Cited by:

    1. Nithin K, 2015. "The Case of Revenue versus Expenditure Optimization in India," Working Papers 1528, Indian Institute of Foreign Trade.
    2. Garg, Sandya & Ashima Goyal & Rupayan Pal, 2014. "Why tax effort falls short of capacity in Indian states: A Stochastic frontier approach," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-032, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Farhadi, Minoo, 2015. "Transport infrastructure and long-run economic growth in OECD countries," Transportation Research Part A: Policy and Practice, Elsevier, vol. 74(C), pages 73-90.
    4. Rao, M. Govinda & Kumar, Sudhanshu, 2017. "Envisioning Tax Policy for Accelerated Development in India," Working Papers 17/190, National Institute of Public Finance and Policy.

    More about this item

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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