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State of Public Finance and Fiscal Management in India during 2001-16

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  • Mukherjee, Sacchidananda

    (National Institute of Public Finance and Policy)

Abstract

During 2001-16, State Finances in India have undergone significant changes in both revenue mobilization and controlling expenditures which helped states to contain deficits (revenue as well as fiscal). Introduction of Value Added Tax (VAT) helped states to augment revenue mobilization whereas adoption of Fiscal Responsibility Budget Management (FRBM) Act helped states in prudential fiscal management. During the period, the improvement in union finances was not as good as state finances. There were two significant shocks to Indian public finances during 2001-16 - firstly, introduction of pay revision for the union as well as majority state government employees, in response to recommendations of the Sixth Central Pay Commission and secondly, global financial crisis (2008-09). States experienced revenue shocks mostly through fall in states' share in central taxes and a mild fall in own tax revenue mobilization during 2008-10. Higher pressure on revenue expenditure due to implementation of the pay commission recommendations (including revision of pensions and payment of arrears) and falling share in central taxes resulted in rise in revenue deficits for states during 2008-10. As a strategy to combat fiscal shocks, different states adopted different measures and some of the measures have inter-temporal implications. The objective of the present paper is to assess the impact of the shocks in Indian public finances and identify challenges for the times to come. Though increasing revenue (`front loading') and reducing expenditure (`back loading') are common responses to any fiscal shock, understanding inter-temporal implications of those responses with specific to changing structure of inter-governmental fiscal transfers could be an interesting exercise.

Suggested Citation

  • Mukherjee, Sacchidananda, 2019. "State of Public Finance and Fiscal Management in India during 2001-16," Working Papers 19/265, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:19/265
    Note: Working Paper 265, 2019
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    References listed on IDEAS

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    1. M. Govinda Rao & R. Kavita Rao, 2005. "Trends and Issues in Tax Policy and Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 2(1), pages 55-122.
    2. Sacchidananda Mukherjee, 2020. "Inter-governmental Fiscal Transfers in the Presence of Revenue Uncertainty: The Case of Goods and Services Tax (GST) in India," Journal of Development Policy and Practice, , vol. 5(1), pages 74-102, January.
    3. Patnaik, Ila & Pandey, Radhika, 2019. "How much equity capital should a central bank hold?," Working Papers 19/262, National Institute of Public Finance and Policy.
    4. Jena, Pratap Ranjan, 2019. "Living under Fiscal Rules: Fiscal Management Response and Resource Allocation Choices for State of Odisha," Working Papers 19/264, National Institute of Public Finance and Policy.
    5. Rao,R. Kavita & Mukherjee,Sacchidananda, 2019. "Evolution of Goods and Services Tax in India," Cambridge Books, Cambridge University Press, number 9781108473965, September.
    6. Amarnath, H.K. & Singh, Alka, 2019. "Impact of Changes in Fiscal Federalism and Fourteenth Finance Commission Recommendations: Scenarios on States Autonomy and Social Sector Priorities," Working Papers 19/257, National Institute of Public Finance and Policy.
    7. Amarnath H. K. & Alka Singh, 2019. "Impact of Changes in Fiscal Federalism and Fourteenth Finance Commission Recommendations Scenarios on States Autonomy and Social Sector Priorities," Working Papers id:13029, eSocialSciences.
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    Cited by:

    1. Pandey, Radhika & Patnaik, Ila, 2019. "Financial sector reforms in India," Working Papers 19/267, National Institute of Public Finance and Policy.
    2. Mukherjee, Sacchidananda, 2022. "Revenue Assessment of Goods and Services Tax (GST) in India," Working Papers 22/385, National Institute of Public Finance and Policy.
    3. Sacchidananda Mukherjee, 2023. "Revenue Implications of GST on Indian State Finances," India Studies in Business and Economics, in: D. K. Srivastava & K. R. Shanmugam (ed.), India’s Contemporary Macroeconomic Themes, chapter 0, pages 123-151, Springer.
    4. Mukherjee, Sacchidandanda, 2020. "Possible Impact of Withdrawal of GST Compensation Post GST Compensation Period on Indian State Finances," Working Papers 20/291, National Institute of Public Finance and Policy.
    5. Pandey, Radhika & Patnaik, Ila, 2019. "Fiscal policy cyclicality in South Asian economies," Working Papers 19/268, National Institute of Public Finance and Policy.
    6. J.S. Darshini & K. Gayithri, 2023. "An Econometric Analysis of Revenue Diversification Among Selected Indian States," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 24(1), pages 41-63, March.
    7. Sacchidananda Mukherjee & Shivani Badola, 2021. "Public Financing of Human Development in India: A Review," Indian Journal of Human Development, , vol. 15(1), pages 62-81, April.

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    More about this item

    Keywords

    Indian Public Finance ; Indian State Finances ; Fiscal spillover ; Fiscal Management ; Revenue mobilization ; inter-governmental fiscal relationship ; Revenue Deficit ; Fiscal Deficit;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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