State Finances and Effectiveness of Policy Measures: An Analysis of Indian States

This paper provides a phase-wise analytical review of the fiscal situation of the Indian major States over the previous two and half decades and examines the effectiveness of the policy measures to strengthen the State finances. The analysis reveals that the States’ fiscal position showed imbalances, albeit in a varied degree, since the mid-1980s which deepened in the second half of the 1990s. The effectiveness of policy measures has remained largely inadequate. Most of the Policy measures were exigency-driven rather than being structured. As the States face large resource gap, they require effective and time-bound policy measures to enhance revenues particularly non-taxes and shift in expenditure pattern towards economic infrastructure and social sectors to facilitate acceleration in growth.