Publication: Policy Note on the Unfinished Fiscal Reform Agenda in Indian States
Both central and state governments have carried out significant correction of financial imbalances since 2000, through the implementation of fiscal reforms including enactment of fiscal responsibility (FR) acts. However, the improvement in the finances of all states in aggregate hides wide disparities between them. Some state governments are already on a sustainable path while some others are far from it. Some have complied with their Fiscal Responsibility acts both in letter and spirit, while others have accumulated off-budget liabilities to unsustainable levels, circumventing the FR acts, which did not specify caps on such liabilities. Moreover, fiscal correction by an Indian state is only a means to an end. The end that is, achievement of development goals-depends on how fiscal space is used, or how efficiently the money is spent to produce outputs and the desired outcomes. A strong fiscal performance will lead both to an improvement in the overall balance via improved structure of revenue and expenditures, with incentives in place to ensure sustained fiscal improvement, and better outcomes associated with budget outlays. Note one examines progress with overall fiscal correction by Indian states during 2000-06. Note two presents case studies of fiscal adjustment experience in three selected states. Finally, note three illustrates how expenditure efficiency could be measured so as to address the challenge of translating outlays to outcomes.
“World Bank. 2008. Policy Note on the Unfinished Fiscal Reform Agenda in Indian States. © Washington, DC. http://openknowledge.worldbank.org/entities/publication/f74017cf-87ec-55eb-acbb-2976f23193d8 License: CC BY 3.0 IGO.”