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The Effect of Intergovernmental Transfers on Public Services in India

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  • Rao, M. Govinda

    (National Institute of Public Finance and Policy)

Abstract

India has witnessed impressive growth performance since the market based re-forms were introduced in 1991. However, its regional spread has been uneven. Consid-ering the fact that over 63 per cent of the population lives in economically lagging states and they have over 67 per cent of children in the age group 0-14 demographic dividends can be realised only when a system of intergovernmental transfers is designed to offset their fiscal disabilities. The present paper analyses the design and implementation of gen-eral and specific purpose transfers in India. While the general purpose transfers are given to enable the States to provide comparable levels of services at comparable tax rates. However, given the large differences in the revenue capacities of the states with the rich-est large state having five times the per capita income of the lowest, it is politically infea-sible to offset the differences in revenue capacities completely. Therefore, the specific purpose which are meant to ensure minimum standards of meritorious services with high degree of externalities are extremely important. However, the analysis shows that there are too many specific purpose transfers, they are poorly targeted and inclusion of multiple objectives in each of the specific purpose transfers makes the compliance by the States difficult. The objective of inclusive development requires that the transfer system should be reformed.

Suggested Citation

  • Rao, M. Govinda, 2017. "The Effect of Intergovernmental Transfers on Public Services in India," Working Papers 17/218, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:17/218
    Note: Working Paper 218, 2017
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    References listed on IDEAS

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    1. Banerjee, Shesadri & Bhattacharya, Rudrani, 2017. "Micro-level Price Setting Behaviour in India: Evidence from Group and Sub-Group Level CPI-IW Data," Working Papers 17/217, National Institute of Public Finance and Policy.
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    5. Rao, Govinda & Shah, Anwar, 2009. "States' Fiscal Management and Regional Equity: An Overview," OUP Catalogue, Oxford University Press, number 9780195698794.
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    1. Rao, M. Govinda, 2017. "Public Finance in India in the Context of India's Development," Working Papers 17/219, National Institute of Public Finance and Policy.
    2. Vaseem Akram & Badri Narayan Rath, 2021. "Understanding the evolution of fiscal performance of Indian states," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2172-2193, December.
    3. Bose, Sukanya & Bera, Manasi & Ghosh, Priyanta, 2020. "Centre-State Spending on Elementary Education: Is it Complementary or Substitutionary?," Working Papers 20/320, National Institute of Public Finance and Policy.
    4. R. K. Pattnaik, 2019. "Indian fiscal federalism: a study of factors affecting resource position of the state governments," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 21(2), pages 191-211, December.
    5. Akram, Vaseem & Rath, Badri Narayan, 2020. "What do we know about fiscal sustainability across Indian states?," Economic Modelling, Elsevier, vol. 87(C), pages 307-321.
    6. Akram, Vaseem & Rath, Badri Narayan, 2020. "Optimum government size and economic growth in case of Indian states: Evidence from panel threshold model," Economic Modelling, Elsevier, vol. 88(C), pages 151-162.
    7. Bose, Sukanya & Noopur, A. & Nayudu, Sri Hari, 2022. "Intergovernmental Fiscal transfers and Expenditure on Education in India: State level analysis, 2005 to 2020," Working Papers 22/377, National Institute of Public Finance and Policy.
    8. Vivek JADHAV & Dr. Shrabani MUKHERJEE, 2024. "Nexus between political federalism, social diversity and human development in India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(638), S), pages 187-200, Spring.

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    More about this item

    Keywords

    Government Expenditures on health ; Government expenditures on education ; State and local budget and expenditures ; Intergovernmental relations;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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