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Fiscal Decentralization in Indian Federalism

Author

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  • M Govinda Rao

    (Institute for social and Economic Change)

Abstract

The paper analyzes fiscal decentralization in a three-tier federal framework in India. After a brief discussion on the evolution of Indian federalism and the description of the prevailing system, the paper brings out anomalies in assignments between centre and states and states and local bodies. Critical analysis of intergovernmental transfers brings out the efficiency and equity implications of their transfers. The paper has some important findings. The inclusion of the third tier in the analysis brings out the true picture of fiscal deficits. Analysis shows that structural deficits in the country are due to fiscal mismanagement at both central and state levels. Despite the semblance of a hard budget constraint at the State level, the states have found ways to soften the constraints. Although the transfer system has equalizing impact, it has disincentives for fiscal management. Constitutional sanction has enabled the institution of local governments, but they do not play a major role in providing public services and much less in raising resources.

Suggested Citation

  • M Govinda Rao, 2001. "Fiscal Decentralization in Indian Federalism," Working Papers 98, Institute for Social and Economic Change, Bangalore.
    • Handle: RePEc:sch:wpaper:98
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    Citations

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    Cited by:

    1. M Devendra Babu, 2009. "Fiscal Empowerment of Panchayats in India: Real or Rhetoric?," Working Papers 229, Institute for Social and Economic Change, Bangalore.
    2. P K Mohanty, 2008. "Municipal Finance in India:An Assessment," Working Papers id:1357, eSocialSciences.
    3. Aadil Ahmad Ganaie & Sajad Ahmad Bhat & Bandi Kamaiah & N. A. Khan, 2018. "Fiscal Decentralization and Economic Growth: Evidence from Indian States," South Asian Journal of Macroeconomics and Public Finance, , vol. 7(1), pages 83-108, June.

    More about this item

    Keywords

    Public Finance; Fiscal Decentralization;

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