Evolution of Fiscal Discipline at State Level in India: Key Insights from Workshop
Explore the evolution of fiscal discipline at the state level in India based on key indicators and trends revealed at the World Bank workshop. The analysis highlights successful fiscal consolidation, lower debt growth, improved sustainability indicators, and reduced vulnerability across states. However, caution is advised due to challenges such as limited revenue growth and capital expenditure retrenchments affecting overall fiscal health.
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Presentation Transcript
Rajaraman on Evolution of Fiscal Discipline at the State level in India Comments by Anwar Shah World Bank Workshop On Subnational Fiscal Rules, Islamabad 24 April 2014
All indicators by RBI point towards a successful fiscal consolidation at state level in India
Growth in Debt/SGDP has been lower in the post FRL period (5 year pre and post averages)
Downward Trends in Deficit, Debt and Interest payments of states debt
Credit market access has replaced states borrowing from the central government
Lower interest rates a major contributory factor to States fiscal consolidation
Fiscal Sustainability indicators of Indian States show positive trends
Vulnerability in non-special category states has been reduced but not overcome
Vulnerability in special category states has also been reduced.
Overall states have done better than the Centre in Fiscal Consolidation in India
A note of caution States fiscal consolidation remains fragile as mostly due to lower interests, debt swaps and debt forgiveness. Limited revenue growth and little retrenchment of current expenditures. Capital expenditure retrenchments hurt growth.
Lessons from emerging success story in India Political consensus and commitment critical for success. Fiscal rules are not a panacea but do help constrain politics of populism. Incentives with accountability for results do matter. A common element of Brazil and India approaches. Local ownership matters. Political commitment motivated by jurisdictional competition an important ingredient for success. Centre should focus on fiscal policy coordination and the enabling environment for credit market access. Central controls on sub-national borrowing negates federalism federal controls neither necessary nor sufficient examples Australia and Canada
Lessons .2 Better measurement of fiscal health needed to account for contingent and non-contingent and explicit and implicit liabilities an area requiring further thought and analysis in India. Administrative decentralization must go hand in hand with political and fiscal decentralization. Task specialization with accountability for results should be the hallmark of States civil service. A unified federal service with rotating life-long appointments to executive positions in states contributes to a centralized federal structure. The Brazilian approach for capping wages and benefits for all tiers a better approach.
