Following two decades of relativelyrapid growth, and a decade of liberalization, there isgrowing confidence within India, as well as internationally,about the state of the economy, and India's developmentpotential. Nonetheless, and particularly since the latenineties, when India's states experienced a sharpfiscal deterioration, they have faced a squeeze ondevelopment spending, particularly acute in the poorer ones.In response, most state governments embarked on fiscalreforms, aimed at reducing deficits, and enabling effectiveinterventions in priority areas. States in India play anincreasingly important role in devising, and implementingpolicies to stimulate economic growth, and promote humandevelopment. But the performance of India's states isincreasingly divergent, State deficits and debt levels rosesharply in the late nineties, and off-budget liabilitiesalso increased rapidly. This sharp fiscal deterioration gaverise to state-level fiscal adjustment efforts, which inrecent years have shown some signs of improved fiscalperformance. Concerns about the level, and composition offiscal deficits remain. The report states that a halt inreforms would endanger the states quality and quantity ofproductive expenditures, while debt levels would steadilybuild. It reviews expenditure reforms - particularlysalaries, at the core of expenditure restructuring - and,pensions as a rapidly-mounting liability, which can becontained by parametric reforms, and longer-term structuralreforms, while also examines subsidies, exemplifying thedifficulties involved in reforming subsidy regimes.Regarding power sector reforms, commercial discipline shouldbe a top priority. Public enterprise reforms are outlined,suggesting that while immediate fiscal gains may not beachieved, such reforms will prevent future budgetary supportfrom keeping loss-making enterprises afloat. On examiningrevenue reforms, the report indicates these are essential toreduce fiscal imbalances, suggesting the elimination of taxon inter-state exports is critical, and should proceed with,or without the value-added tax (VAT), specifying taxadministration reforms are perhaps more important than taxreforms. On strengthening the fiscal federal framework, itis recommended States need more flexibility to borrow, butunder a centrally-imposed aggregate borrowing cap. Threeinstitutional reform would therefore help fiscal federalismin India: Finance Commission as a permanent body; entrustinga single agency in compiling timely state-level fiscal data;and, reviewing the role of the Planning Commission.
PDF
download
878987797
028-85220240
