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

Pinaki ChakrabortySubscribe to Pinaki Chakraborty

Will UDAY Brighten Up Rajasthan’s Finances?

Fiscal prudence in most countries, including India, is focused on general government deficit. Though there is strong merit in focusing on the public sector borrowing requirement (PSBR) to judge fiscal health, paucity of data and its timeliness always prevented having a consolidated view of public...

New FRBM Framework

The structural inability to control revenue deficits needs different solutions from the usual argument that the utilisation of government expenditure is inefficient and that the government should spend less. It is time to relook at the way the union government spends.

Evaluating Taxation Systems and Policies

Taxation: Principles and Applications—A Compendium by Parthasarathi Shome, Lexis Nexis, 2014; pp 824, ₹ 1,495.

State Level Debt–Deficit Dynamics

An analysis of the debt and deficit of states based on the budget estimates of 2016–17 shows that almost half of them have a fiscal deficit target higher than the limit set in the Fiscal Responsibility and Budget Management Act. These states need to focus on the quality of expenditure and elimination of revenue deficit as per the framework proposed by the Fourteenth Finance Commission to enhance state-level capital spending.

Emerging Issues in Union–State Fiscal Relations

The restructuring of non-Finance Commission Grants is an improvement when it comes to scheme-related transfers. However, when 10 schemes constitute 90% of core grants, there is further scope for rationalisation of these schemes. The implications of following a sustainable debt path under the new Fiscal Responsibility and Budget Management framework in the budget indicate a larger fi scal correction at the state level vis-à-vis the union government.

Evolving Centre–State Financial Relations

After the Fourteenth Finance Commission award, aggregate transfers as a percentage of gross domestic product has increased, while grants as a percentage of GDP has declined. The centre is resorting to cess and surcharges that are not shared with the states. This would mean denial of revenue to states, which goes against the spirit of the Constitution. Further, the states have a reduced untied fi scal space, with the union’s share in Centrally Sponsored Schemes in 2016–17 (BE) being reduced. Finally, in the absence of plan transfers, post 2017–18, the focus should be to develop a framework for non-fi nance commission grants to states which is predictable and certain.

Beyond Fiscal Prudence and Consolidation

Since sustainable deficit could be different than the numeric fiscal rule, a review of the Fiscal Responsibility and Budget Management Act is timely and important. However, such a review should bear in mind that macro-stabilisation is a central function and the burden of fiscal adjustment should squarely fall on the union government keeping state debt and deficits withinFRBM limits. Maintaining the higher tax to gross domestic product ratio of last year will be key for fiscal prudence in 2016-17.

Restructuring of Central Grants

What impact has the award of the Fourteenth Finance Commission had on the resources and spending of state governments? Does it necessarily have to lead to a decline in outlays in the social sector? An illustrative and preliminary exercise for Bihar.

Finance Commission's Recommendations and Restructured Fiscal Space

Since it is neither feasible nor desirable to reduce central grants to the states equivalent to the increase in tax devolution, the award of the Fourteenth Finance Commission is certainly not revenue neutral for the union government. But the larger question is not of arithmetic but of a shift in policy towards greater fiscal autonomy to the states by ensuring more than 70% of the fund flow through the Finance Commission route and also preserving the fiscal space for the union for its own functions. It is about getting expenditure priorities right at each level of government.

Fiscal Consolidation, Macro Fundamentals and Growthin Budget 2013-14

Due to the tight monetary policy stance adopted by the Reserve Bank of India for a sustained period of time to control infl ation, the burden of correcting macroeconomic imbalances and reviving growth seems to have fallen entirely on the Union Budget and fi scal policy. The fi scal consolidation proposed in the Union Budget for 2013-14 is a combination of a marginal reduction in aggregate non-Plan expenditure and buoyant revenue growth. If revenue targets are not met, fi scal consolidation can go off the track as the scope for expenditure contraction is limited.

The Quality of Governance

There is a core concept of good governance, the combination of authority and responsibility to pursue the common good, that has remained stable over millennia. Building on this concept the paper develops several indices of the quality of governance and applies these indices to rank major states in India. The governance indices have been derived from the three main pillars of the government, i e, the legislature, the judiciary and the executive. Performance on each dimension of governance has been measured using indicators that are all based exclusively on factual data, not perceptions. The paper shows that there is a strong correlation between governance quality and the level of development in a state. When we correct for the effect of development on the quality of governance, it turns out that some of the poorer states significantly improve their rank, implying their governance performance is much better than would be expected at their level of development.

Debating the Thirteenth Finance Commission

Two comments and two responses on two of the papers published in the special issue of the recommendations of the Thirteenth Finance Commission (27 November 2010). (This discussion could be read alongside that published on 26 March 2011.)

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