State finances in the context of the emerging federalism in India: analysis of past experience in fiscal discipline and consolidation

Abstract

Implications of increased central transfers of resources to states would make state budgets more important in determining fiscal prudence of the Indian economy that has a multiparty federal democracy. The article examines the quality of fiscal marksmanship at the state level revealed by the recent evidence. It also considers various parameters of fiscal consolidation over the past 10 years in the 17 non-special category states. The panel regression exercise suggests that the likely impact of enhanced central transfers may have mixed effects on fiscal consolidation of states and hence the Indian economy.