Abstract
The recent paper by Raychaudhuri and Roy (2021) in the South Asian Journal of Macroeconomic and Public Finance has been both timely and intensely thought provoking as it suggests an alternative approach for intergovernmental fiscal transfer in India. Fiscal transfers to subnational governments by the Finance Commissions in India is critical for maintaining the spirit of co-operative fiscal federalism in the country and is designed to improve the overall fiscal health of the economy. Rewarding the states for their efforts in improving public investment management would certainly help make the devolution rules for the Finance Commission time consistent and truly welfare- and growth oriented, and it would also help address the issue of vertical and horizontal gap in a more sustainable manner.
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