Dependence of states on central transfers: State-wise analysis..

Just love such papers from NIPFP stable. The core purpose of NIPFP is to understand public finance in India and such occasional papers really help figuring the maze of public finance in India. It is a huge interest area of this blogger. One can also see this primer  written by the blogger in his earlier role to get some feel of the topic.

This paper is written by C. Bhujanga Rao and D.K. Srivastava and analyses how much States rely on Centre for its finances. The authors first classify the 28 states into five categories and then use different ways to understand the dependence of states on centre:

This paper examines the dependence of states on central fiscal transfers. The pattern of dependence of states on central transfers is studied with respect to five groups of states, namely, high, middle and low income general category states and two groups of special category states categorized into high and low income states.

We make a distinction between transfers that are in the form of an entitlement like states’ share in central taxes or statutory grants vis-a-vis transfers that are discretionary and depend on centre’s decisions. In terms of groups of states, the extent of dependence is relatively quite high for the special category states and the low income states.

The extent of dependence was lowest during the period covered under the Tenth Finance Commission period. It has since increased, for all states considered together, by about 3.5 percentage points, from 37.4 percent to 40.9 percent of states’ revenue receipts. This increase comes both from entitlement transfers and discretionary transfers to the extent of 2.1 and 1.3 percentage points, respectively.

As it is a state-wise analysis one is not able to draw 4-5 trends given the complexity of the state finances and approach followed by Finance Commission (for statutory transfers) and Centre/Planning Commission (discretionary transfers). So you get broad trends for different states say whether Karnataka’s dependency has increased/decreased . Within dependency, whether share of statutory has increased or decreased and so on.

Nice stuff.


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