Is Maharashtra Performing Worse Than Other States? A Comparive Study of Public Finances of Indian States

Second Generation Reforms (SGR) has become the new buzz-word around policy circles. In fact, a few governments (Central government included) have gone ahead and proclaimed that they have already initiated SGR. Of course, it is not made clear whether these SGR are being initiated after having already achieved all that was expected of First Generation Reforms (FGR). Generally, it is not even spelt out exactly what constitutes the SGR that are being ushered in. From the point of view of the State governments, government finances seem to be the most relevant and essential component of FGR, since for the economy as a whole, it is stability in the fiscal balances of all levels of government that is crucial. This necessarily implies that as far as FGR are concerned, the very least that State governments should aim for is to set their fiscal balances in order. Maharashtra’s pr-eminent position among the major states of the country has come under a cloud in recent years. This study tries to examine in detail the public finances of the state of Maharashtra as an indicator of progress as far as FGR are concerned. The state of public finances make up the environment within which investment decisions get taken and there is sufficient (international) evidence to show that adverse fiscal balances act as deterrent to investment. While we do not examine the links between fiscal balances and investment in Maharashtra we carry out a detailed study of the public finances of the state. We also compare Maharashtra’s performance with the 13 large states focusing more closely on the state’s closest competitors: Andhra Pradesh, Gujarat, Karnataka and Tamil Nadu.