Evidence-based Policy Insights on Fiscal Governance of Indian States: A Post-FRBM Analysis

Abstract

This study attempts to assess the policy (fiscal) discipline of thirty-one Indian states and union territories using principal component analysis of six key sub-indicators in the period after the Fiscal Responsibility and Budget Management (FRBM) Act was enacted. The results of the study reveal a wide variation across Indian states in terms of fiscal discipline. The study observes that, along with Kerala, Gujarat, Rajasthan and Chhattisgarh, Tamil Nadu has been consistently in the top five states over the years. In contrast, Delhi, Himachal Pradesh and Mizoram have consistently exhibited poor fiscal performance during the study period. This study also notes that states such as Karnataka, Assam, Meghalaya, Sikkim, Manipur, West Bengal, Bihar and Maharashtra consistently placed themselves in the list of satisfactory performing states. The study suggests that all state governments in India, not just governments with a history of poor fiscal discipline, should conduct a comprehensive review of their spending to identify inefficiencies and prioritise spending in key areas such as healthcare, education, innovation and infrastructure.

Keywords

Fiscal policy fiscal discipline principal component analysis (PCA)Fiscal Responsibility and Budget Management (FRBM) Act economic growth

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