Sp Issue on 16th Finance Commission- (wl 7423) Browsing through 34 Years of State Finances in India: Insights for the Sixteenth Finance Commission

In this paper, we look at the fiscal behavior of the states in India for the period from Ninth FC (1990-91 to 1994-95) to Fifteenth FC (2020-2021 to 2023-24). The purpose is to draw insights from the past fiscal behavior of the states. We have adopted an integrated approach wherein fiscal consolidation on the revenue account, federal fiscal transfers, and the FRBM Act are analyzed in a single framework. We observe that the above-mentioned aspects influence the capital expenditure of the states. During the Twelfth Finance Commission period, states reported some positive fiscal behaviors such as fiscal consolidation efforts on revenue account, increase in capital expenditure, and reduction in fiscal deficit. However, during the Fourteenth FC period and subsequently, the states deviated from these positive aspects. Therefore, we argue that the Sixteenth FC should take the integrated approach and ensure the reverting of the states to the desired fiscal behavior.