- Tripura assembly elections: Voting underway amid tight security
- Narendra Modi to inaugurate fourth container terminal of JNPT tomorrow
- Canadian PM Justin Trudeau begins week-long India visit
- PMO working on resolving PNB fraud, will try to extradite Nirav Modi: MoS finance
- Tibet’s most sacred Buddhist temple catches fire
It is unfortunate that the budgets of state governments receive far less attention as compared to the excitement over the annual financial statement of the central government. And this is despite the fact that the states now collectively spend more than the centre does.
One big worry this year is the deterioration in state budgets. It is worth asking some tough questions about fiscal decentralization in this age of cooperative federalism. A new working paper by economists at the International Monetary Fund provides two very important insights on this issue. First, greater fiscal decentralization is usually associated with a stronger fiscal balance. That is good. Second, fiscal decentralization can lead to more pro-cyclical fiscal policy. That is bad. The authors of the report quite rightly point out: “The design and pace of fiscal decentralization need to be tailored to the specificities of the economy.”
A lot depends on budget management capability at the local level. It is no secret that India needs more of this capability in its second and third tiers of government.