Indian Fiscal Federalism: A Few Empirical Questions (Review of Dr YV Reddy’s book)…

Prof Lekha Chakrabarty reviews Dr Reddy’s new book on Indian fiscal federalism.

The book titled “Indian Fiscal Federalism” co-authored by Y V Reddy and G R Reddy is written from a “practioner’s perspective”. The simplicity of this book is appealing, especially when the content of the book is about a very complex set of rules and games between the Centre and the States. I have identified a few “empirical questions” in the book. Let me confine my discussion to these empirical aspects.
One aspect that received less adequate recognition in the context of “what holds India together” is the role of Finance Commissions1. The book rightly highlights the significance of the existing institutional mechanisms for providing “predictability in the federal fiscal relations” along with the smooth transition of political regimes through peaceful elections, State Re-organization mechanisms and the other institutions of economic management.  The book throws light into these aspects of “asymmetric” and “co-operative” federalism in India.  There was “continuity”. There was “change”. The effectiveness of such processes in creating “convergence” is an empirical question. Such empirical questions have gained significance globally.
In Brooking Papers (2017)2 there was a similar analysis of “economic convergence” about whether “Europe as a political project too ambitious?” They have found that there is a great extent of “economic convergence” within the European Union, despite widening cultural and institutional heterogeneities within an “economically integrated” Europe. However, the “cultural divergence” – “nationalism” – is the stumbling block. Such issues have started appearing even in the well-functioning federations like the US, with “protectionist” policies.
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