Designing Transfers Policy With Normatively Determined Revenues And Expenditures Of State Governments In India

Authors

DOI:

https://doi.org/10.55763/ippr.2022.03.03.002

Abstract

This study addresses an important policy issue of designing equalisation transfers from the union government of India to the states. It empirically measures the own revenue efficiency and potential of General Category and Special Category States using the frontier approach for panel data.  It also analyses the effect of transfers on states’ own revenue and its components. Results indicate a strong crowding-out effect of transfers in General Category States and a strong crowding-in effect in Special Category States. Amounts of additional transfers required to provide equal level of public services for all 29 States in four alternative scenarios range between ₹1072 billion and ₹15,948 billion. The range is based on alternate benchmarks of fiscal capacities and expenditure needs. We hope that these results will be useful to policymakers and other stakeholders to design appropriate fiscal transfer strategies such that all citizens can avail a standard level of public services in India.

Keywords:

Fiscal equalisation, expenditure needs, fiscal capacity, Indian states

Authors Bio

K Shanmugam, Madras School of Economics

Senior Research Scholar, Madras School of Economics and former Chief Secretary of Government of Tamil Nadu

K.R. Shanmugam, Madras School of Economics

Director and Professor, Madras School of Economics

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Published

2022-05-20