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

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Report of the 13th Finance Commission: Introduction and Overview

This special issue on the Report of the Thirteenth Finance Commission has eight experts evaluating its recommendations from different perspectives. While acknowledging the many plus points of the report, the writers also draw attention to its numerous drawbacks, ranging from a lack of proper attention and omissions to faulty logic. There is little doubt that some of the recommendations, if implemented in the right spirit, will benefit the management of public finances in the country. However, an awareness of the report's limitations could serve as an antidote to not slipping up again.

Deficit Fundamentalism vs Fiscal Federalism: Implications of 13th Finance Commission's Recommendations

The Thirteenth Finance Commission's recommendation to increase the vertical share of tax devolution to states will help, but its horizontal distribution formula leaves much to be desired. One, its design is such that two of the four key indicators are in conflict with each other. Two, the commission's revised road map for fiscal consolidation at the centre and the states, which recommends state-specific, year-wise, fiscal adjustment paths, not only limits the fiscal manoeuvrability of states but also impinges on their fiscal autonomy. Three, its design of the grant for elementary education has the potential to reduce the expenditure of states rather than augment it. The need to look at intergovernmental transfers from the right perspective of federalism, where the states and the centre are seen as equal partners in development and not from a narrow technocratic viewpoint, cannot be stressed more.

Goods and Services Tax in India:An Assessment of the Base

One of the most contentious issues in the discussions surrounding goods and services tax is the likely and feasible rates at which the new regime can be implemented. There have been a number of attempts at estimating the size of the tax base and the corresponding revenue neutral rate. The latest in the series is the report of the Task Force on gst of the Thirteenth Finance Commission. Most of these exercises throw up incredibly low revenue neutral rates resulting in apprehensions about the validity of these estimates and the consequent revenue risk. This paper seeks to estimate the base for the proposed gst on conservative assumptions to arrive at a more realistic estimate of the revenue neutral rates across states.

Intra-Regional Inequality and the Role of Public Policy: Lessons Learnt from Kerala

Despite an accentuation of consumption inequality in recent years in Kerala, development in the social sector has been more or less equitable across districts. Kerala's achievements in human development have been primarily due to the active intervention of the government in the social sector. The high priority to social sector spending has posed serious challenges to the state in terms of upkeep and also in tackling second generation problems of its model of development. It has also contributed to a large fiscal imbalance. Decentralisation is a step that was introduced in the mid-1990s to sustain the path of Kerala's development through local-level planning incorporating local needs and preferences.

Macro Policy Reform and Sub-National Finance: Why Is the Fiscal Space of the States Shrinking?

In the post-economic liberalisation era, financial sector and fiscal reforms by the central government have adversely affected sub-national finances. The centre's fiscal consolidation measures have contributed to the sharp decline in vertical transfers and the financial liberalisation-induced increase in interest rates has widened the resource gap of the states through an increase in the interest outgo on the stock of debt. This paper examines the effect of the fiscal imbalance on the sub-national fiscal space. Econometric estimates reveal that though the effect of the cost of debt on total expenditure is expansionary, it is negative with respect to the fiscal space. As the sub-national fiscal space has been shrinking, corrective measures are required to increase the states' ability to fulfil developmental fiscal needs.

Intergovernmental Transfers: Disquieting Trends and the Thirteenth Finance Commission

The way in which the terms of reference of successive finance commissions have been framed, including that of the Thirteenth Finance Commission, has diluted the basic constitutional rationale of having such a statutory commission. Various deficiencies in the transfer system require correction not through a heavy reliance on tied and conditional grants (as we have seen in recent years), but with an alternative approach which accommodates and protects the objectives of equity, efficiency and autonomy of the recipient state governments.

Implementation of Employment Guarantee: A Preliminary Appraisal

The National Rural Employment Guarantee Scheme has so far posed no problem for the budget. Its allocation is only marginally higher than what was spent in the past by the government on various rural employment programmes. It is a demand-driven scheme and it has fallen far short of meeting demand in some states. The fund utilisation ratio also varies widely across states.

Rural Poverty in Madhya Pradesh

This study examines the incidence of rural poverty in Madhya Pradesh based on a field survey of 2,208 rural households spread over 11 districts. The issues of poverty are examined in a multidimensional perspective with emphasis given to issues related to access to publically provided services like health and education. There is a need for greater and more effective fiscal intervention for poverty reduction and employment generation. The implementation of the National Rural Employment Guarantee Act may prove to be an effective intervention in reducing poverty in rural areas of the state.

Debt Swap in a Low Interest Rate Regime

The ongoing debt-to-debt swap schemes have made significant savings to the centre's debt burden; but it has had only a limited impact on the states. The interest savings for states have been very small. Moreover, as the states have had to swap long-term debt for loans of a shorter maturity, the changing profile may create frequent repayment obligations for the states and increase roll-over risk. Debt management policy should ensure that the states can borrow on terms comparable to those of the centre, so that the spread of interest rates between the debt of the centre and the states is reduced.

Towards a Rational System of Centre-State Revenue Transfers

Rationalisation of the transfer system and restoration of fiscal balance in the states will not be possible without a radical review of the practice of planning, plan financing and central assistance for state plans. While determining revenue needs of the states normatively, it is necessary to take a holistic view and do away with the plan and non-plan distinction in revenue expenditures, which is a source of other distortions in expenditure priorities. Until that happens, rationalisation of the transfer system will not be possible.

I S Gulati: Our Teacher

As his PhD students, we saw the late I S Gulati performing three roles: those of the practising policy-maker, a researcher acutely concerned about the role of fiscal policy in India and a teacher.

Recent Trends in State Government Finances

expenditure itself turned out to be one of Recent Trends in State Government Finances the major reasons for the increase in fiscal deficit at state level.

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