India’s System of Intergovernmental Fiscal Relations

This paper examines several aspects of India’s system of Intergovernmental Fiscal Relations (IGFR). It first reviews the origins and context within which the IGFR system was established and examines how it has evolved. It describes the nature of the system, including assignment of powers and functions, intergovernmental fiscal transfers and the principles that guide their design. It examines several other dimensions of the IGFR system, such as its interface with policy imperatives, evolution of norms, and recent institutional developments. It concludes with an assessment of lessons learned so far, and key challenges that lie ahead. ∗ This is a revised version of a paper presented at the 10th Anniversary Conference of the Financial and Fiscal Commission of South Africa, held on August 10-12 2004 at the Capetown International Convention Center, Capetown, South Africa. The paper draws on joint work with M. Govinda Rao, as well as other joint work with T.N. Srinivasan. I have learned a tremendous amount from each of them, and express my deep gratitude for the opportunity to work with each of them, and the resulting knowledge transfer. Nevertheless, they are totally blameless for errors and shortcomings in this piece. I am grateful to Renosi Mokate, Commissioner of the FFC, for giving me the opportunity to participate in the conference, and for her valuable suggestions on an earlier draft. Again, she is absolved of any responsibility for remaining shortcomings in this paper, which in no way represents her views, or those of the FFC. + Phone: (831) 459-4093, Fax: (831) 459-5077, Email: [email protected]