Restoring balance

28 Jan 2015 By Andy Mukherjee

The states of India need a break. They have lived with spending curbs that New Delhi has never accepted for itself. But this has bred angst. The upcoming budget is a chance to boost regional spending even as the federal government cuts back. The rebalancing will spur GDP growth.

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Indian Finance Minister Arun Jaitley will present the federal government’s annual budget on Feb. 28. He is expected to target a further reduction in New Delhi’s fiscal deficit from an estimated 4.1 percent of GDP in the financial year that will end on March 31.

Excluding debt repayments, India’s 29 states have curbed the gap between what they spend and what they earn from local taxes, their share of federal taxes, and central government grants to below 1 percent of GDP for 10 out of the last 11 years. The only exception was the immediate aftermath of the global financial crisis.

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