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Indian Federalism, Economic Reform and Globalization

  • Nirvikar Singh

    (University of California, Santa Cruz)

  • T.N. Srinivasan

    (Yale University)

In this paper we examine several dimensions of economic reform in India, in the context of the country’s federal system and of globalization, i.e., we explicitly recognize that the national government has subnational governments below it, and that all these layers of government simultaneously interact with foreign governments and corporations in a global economy. We examine two groups of reforms, the first involving redrawing of state-market boundaries, and the second concerned with reconfiguring federal institutions themselves. The first group includes financial sector reforms, assignment of regulatory powers, infrastructure reform and development, and privatization. We note the progress made in financial sector reform but also the problems caused for the financial sector as a whole by state and central fiscal deficits. We discuss the extreme problems of the power sector, and the important federal dimensions that make reform more difficult there. We also highlight the regional concentration of FDI in India’s more liberalized economy. The second group of reforms includes tax reforms, reform of center-state fiscal transfer mechanisms, and local government reforms. To some degree, these reforms in federal governance hold the key to opening the door to further reform elsewhere, by reducing the fiscal burden placed on the private sector by government deficits. We acknowledge the political economy aspects of reform of governance, and discuss possibilities for politically acceptable packages of fiscal reforms, such as combinations of changes in tax assignment that would be acceptable to the center as well as the state governments. We also discuss the possibility that growing regional inequalities might require the intergovernmental transfer system to be more efficient and effective in its objectives.

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File URL: http://econwpa.repec.org/eps/pe/papers/0412/0412007.pdf
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Paper provided by EconWPA in its series Public Economics with number 0412007.

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Length: 55 pages
Date of creation: 07 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0412007
Note: Type of Document - pdf; pages: 55
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Nirvikar Singh & Garima Vasishtha, 2004. "Some Patterns in Center-State Fiscal Transfers in India: An Illustrative Analysis," Public Economics 0412005, EconWPA.
  2. Paul Cashin & Ratna Sahay, 1996. "Internal Migration, Center-State Grants, and Economic Growth in the States of India," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 123-171, March.
  3. Paul Cashin & Ratna Sahay, 1997. "Internal Migration, Center-State Grants, and Economic Growth in the States of India: A Reply to Rao and Sen," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 289-291, June.
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