State Government Finances

This paper attempts to bring out the deteriorating trend in state finances in recent years, in particular during the last two years. Failure to contain wasteful expenditure and reluctance to raise additional resources on the part of the states are the main causes. Tax wars among state governments to attract private investments in the wake of economic reforms as well as competitive populism on the part of ruling parties and contenders for power led to this. The last blow has been the pay revision of employees forced upon the state governments by the centre's unilateral decision to implement Fifth Pay Commission Report. Consequently, states are starved of funds to meet the essential investment needs in social and infrastructure sectors. Large borrowings are resorted to by several states just to meet the current expenditure. Almost all the indicators of fiscal health of the state economies are steadily deteriorating. The paper reaches the conclusion that unless drastic measures to correct the situation are resorted to without delay, finances of several states will collapse.