Challenges in state budgeting |
By Aditya Sinha
Frédéric Bastiat once remarked, “Government is the great fiction through which everybody endeavours to live at the expense of everybody else.” Nowhere is this fiction more evident than in India’s sub-national public finance, where the illusion of infinite resources drives chronic overspending, mounting debts, and political short-termism. Sub-national fiscal responsibility legislations (FRLs) were introduced to impose discipline, but their design and enforcement vary widely across states, reflecting a troubling lack of uniformity. While some states adhere to stringent rules and demonstrate fiscal prudence, others exploit loopholes or ignore long-term consequences in favour of immediate political gains. This stark variation, coupled with economic mismanagement, creates a dangerous cocktail of fiscal instability. Without consistent standards and stronger accountability, India risks plunging into a fiscal disaster where one state’s excesses could spill over and undermine the nation’s economic foundation.
The Reserve Bank of India (RBI), in its latest State Finances Report, has reviewed sub-national FRLs, and the report is worth a read. Fiscal transparency is a cornerstone of good governance. While the Union government has made significant strides in fiscal transparency, state governments have also adopted measures to enhance their fiscal disclosures. Key........