State Fiscal Reforms in India : Progress and Prospects
Following two decades of relatively rapid growth, and a decade of liberalization, there is growing confidence within India, as well as internationally, about the state of the economy, and India's development potential. Nonetheless, and particu...
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| Format: | Debt and Creditworthiness Study |
| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2004/11/5400847/india-state-fiscal-reforms-india-progress-prospects http://hdl.handle.net/10986/14609 |
| Summary: | Following two decades of relatively
rapid growth, and a decade of liberalization, there is
growing confidence within India, as well as internationally,
about the state of the economy, and India's development
potential. Nonetheless, and particularly since the late
nineties, when India's states experienced a sharp
fiscal deterioration, they have faced a squeeze on
development spending, particularly acute in the poorer ones.
In response, most state governments embarked on fiscal
reforms, aimed at reducing deficits, and enabling effective
interventions in priority areas. States in India play an
increasingly important role in devising, and implementing
policies to stimulate economic growth, and promote human
development. But the performance of India's states is
increasingly divergent, State deficits and debt levels rose
sharply in the late nineties, and off-budget liabilities
also increased rapidly. This sharp fiscal deterioration gave
rise to state-level fiscal adjustment efforts, which in
recent years have shown some signs of improved fiscal
performance. Concerns about the level, and composition of
fiscal deficits remain. The report states that a halt in
reforms would endanger the states quality and quantity of
productive expenditures, while debt levels would steadily
build. It reviews expenditure reforms - particularly
salaries, at the core of expenditure restructuring - and,
pensions as a rapidly-mounting liability, which can be
contained by parametric reforms, and longer-term structural
reforms, while also examines subsidies, exemplifying the
difficulties involved in reforming subsidy regimes.
Regarding power sector reforms, commercial discipline should
be a top priority. Public enterprise reforms are outlined,
suggesting that while immediate fiscal gains may not be
achieved, such reforms will prevent future budgetary support
from keeping loss-making enterprises afloat. On examining
revenue reforms, the report indicates these are essential to
reduce fiscal imbalances, suggesting the elimination of tax
on inter-state exports is critical, and should proceed with,
or without the value-added tax (VAT), specifying tax
administration reforms are perhaps more important than tax
reforms. On strengthening the fiscal federal framework, it
is recommended States need more flexibility to borrow, but
under a centrally-imposed aggregate borrowing cap. Three
institutional reform would therefore help fiscal federalism
in India: Finance Commission as a permanent body; entrusting
a single agency in compiling timely state-level fiscal data;
and, reviewing the role of the Planning Commission. |
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