ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Garima VasishthaSubscribe to Garima Vasishtha

Patterns in Centre-State Fiscal Transfers

India's federal system is distinguished by tax and expenditure assignments that result in large vertical fiscal imbalances, and consequent transfers from the central government to the state governments. Several channels are used for these transfers: the Finance Commission, the Planning Commission, and central government ministries. This article uses panel data on centre-state transfers to examine how the economic and political importance of states influences the level and composition of per capita transfers, as well as differences in temporal patterns of Planning Commission and Finance Commission transfers. We find evidence that states with indications of greater bargaining power seem to receive larger per capita transfers, and that there is greater temporal variation in Planning Commission transfers.

Non-Performing Loans of PSU Banks

The paper performs a panel regression on the definitionally uniform data now available for a five-year period ending in 1999-2000, on non-performing loans of commercial banks. The exercise is confined to 27 public sector banks, so as to investigate variations within a class that is homogeneous on the ownership dimension. The exercise groups banks with higher than average NPAs into those explained by poor operating efficiency, and those where the operating indicator does not suffice to explain the high level of NPAs, and leaves an unexplained intercept shift. Two of the three weak banks identified by the Varma Committee, Indian Bank and United Bank of India, fall in this category. Recapitalisation of these banks with operational restructuring may therefore not be the solution, since there is clearly a residual problem even after controlling for operating efficiency.

Impact of Grants on Tax Effort of Local Government

This paper examines the impact of state-local grants on tax effort of rural local governments (panchayats) for Kerala state using data for 1993-94. After controlling for tax capacity we find a negative impact on own tax revenue of lump sum 'untied' grants that are predictable and unvarying. The reduction in own tax revenue is the result of a selective slackening of tax effort. The post-grant pattern of tax incidence will therefore be less transparent than the nominal pattern, less preserving of voter preferences, and possibly driven by corruption towards greater regressivity. The data contradicts the flypaper effect and also theories of fiscal effects of ethnic fragmentation.
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