Impact of intergovernmental transfers and recent paradigm shift in Indian fiscal structure on states' own revenues
- Indian Journal of Economics
- 99(394), Jan, 2019: p. 453-485
This paper is an empirical attempt to examine the impact of intergovernmental transfers on own revenues of Indian states. Unlike previous studies, we have examined impact of transfers with due consideration for political factors. ( in addition to demographic and fiscal factors) that may dampen or enhance the states’ own revenue raising efforts. We could not find evidence for states resorting to lenient revenue raising efforts. If they are politically aligned to central government or if elections were approaching. However, funds transferred through different channels have differential impact ton states’ own revenues. We have also examined impact on fiscal space of India states because of recent paradigm shift in Indian fiscal system more specifically characterized by enhanced devolution ( 42%) for states after implementation of FC-XIV recommendation. Budgetary figures revealed that increase in devolution percentage may be regarded as compositional shift as it has not actually expanded the fiscal space for states although it had added a little to their flexibility. This compositional shift will have a negative bearing on the states’ own revenues in view of the fact that differently routed funds have different impacts on states’ own revenues. To avoid the weak state finances because of this com positional shift many policy measures have been suggested. - Reproduced