The fiscal tightrope for State governments
State governments in India, particularly high-performing ones like Kerala and Tamil Nadu, are facing significant fiscal stress due to high debt levels. The article highlights the structural mismatch between the states' high social spending responsibilities and their limited revenue-raising powers.
Why it matters
It highlights the ongoing tension in Indian federalism regarding fiscal autonomy and the sustainability of social welfare spending.
Kerala and Tamil Nadu are among the most socially and economically advanced States in India. Yet, the finances of both governments, like those of most other States, are under stress. The White Papers recently released by the two governments described their outstanding debt as alarming. State government debt is often vilified as the result of fiscal mismanagement. But it may, in fact, reflect a mismatch between development aspirations and the limited fiscal capacity of State governments.
The article emphasizes the importance of social sector spending and critiques the fiscal constraints imposed on states.
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