IMF Working Papers

Growth Convergence and Public Finances of India and its States

By Rajan Govil, Khyati Chauhan

November 15, 2024

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Rajan Govil, and Khyati Chauhan. "Growth Convergence and Public Finances of India and its States", IMF Working Papers 2024, 235 (2024), accessed November 21, 2024, https://doi.org/10.5089/9798400289286.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Lack of convergence in per capita income across Indian states requires greater resources for lower-income states for investment and improved public services. Central and state governments need to raise revenue (both tax and non-tax), dismantle the administered pricing mechanism, reduce subsidies, and reorient expenditure toward national and state-level priorities. This is essential to ensure India remains on a sustainable fiscal path with higher growth, given the high public debt at the centre and state level. The observed wide differences in fiscal parameters across states require a tailored policy for each state. The large stock of debt of several states puts at risk the adequate financing of growth-enchancing expenditures.

Subject: Capital spending, Consumption taxes, Expenditure, Government debt management, Income, Income and capital gains taxes, National accounts, Public debt, Public financial management (PFM), Revenue administration, State equity participation, Taxes, Total expenditures

Keywords: Capital spending, Central and State Public Finances, Consumption taxes, Government debt management, Growth Convergence, Income, Income and capital gains taxes, India, State equity participation, Total expenditures

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