This paper examines the relationship between federal transfers and fiscal deficits in India. The system of federal transfers has been criticized on the grounds that it distorts the incentives for states to promote fiscal discipline. We analyze the relationship between transfers, state domestic product, and fiscal deficit for a panel of states during the period 1990-2010. The paper finds a positive long-run relationship and bi-directional causality between primary/gross fiscal deficits and non-plan transfers. Further, there is a negative long-run relationship and one-way causality between state domestic product and transfers. These results are confirmed by multi-variate cointegration analysis, which finds a long-run relationship between fiscal transfers, state product per capita and the primary deficit of the states. The evidence in the paper is consistent with the system of fiscal transfers being -gap-filling‖.
This paper analyzes if the industrial policy framework of the Indian Government with regard to the proliferation of SEZs has satisfied its aims and objectives. The analysis however, shows otherwise. The empirical results show that the policy of the Indian Government has been lopsided, wherein the concentration of SEZs has increased in States which face lower levels of unemployment and a comparably high level of FDI inflow. Further, the concentration of the SEZs has been restricted majorly to the IT industry resulting in rigidity in the export mix. Policy implications hint towards a diversification of the SEZ industry portfolio and in increasing the size and therefore, the economic impact of these zones.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
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