Growth, Development Outcome and Fiscal Balance: How Have Indian States Performed?

Abstract

Seventh chapter onwards the volume again takes state as unit with a set of different parameters to gauge disparity-issue in India, which are sometimes linked to even global issues like the impacts of global financial crises and globalization on India’s regional development outcomes. It also compares with international scenario like in China to understand the degree of internal threat of development-disparity in India. Thus Pinaki Chakravorty in the seventh chapter has analyzed both growth performance and the sources of growth across states. He attempts to link the levels of fiscal imbalance across states and the fiscal space for spending on development outcome in both backward and leading regions of the country. The chapter situates India’s growth and development in the context of the global financial crisis by examining the growth performance across states before and after the global financial crisis and the consequent economic recession. The growth process in post-reform India has failed to benefit all the regions of the country in a uniform pattern. The study interestingly observes that fiscal reforms have largely been revenue-driven via growth. Although, there has been an improvement in the aggregate fiscal position of the states till 2007-08, thereafter, there have been disparities in fiscal performance across states and the transfer system has not been able to offset the fiscal differences across states. Disparities in per-capita spending have increased in recent years. Given increasing fiscal inequality in spending, the author suggests that at policy level, there is a need to correct this trend so that individual state governments are able to provide `comparable levels of public services at comparable levels of taxation’, which has implications for growth.