1. Combined Finances of Union and States and the Issue of Fiscal Space
Pinaki Chakraborty
National Institute of Public Finance and Policy
New Delhi

2. Focus of the Chapter Analysis of Union Finances for the year 2017-18
To quantify the effect of enhanced devolution and flow of grants on subnational fiscal space
To examine what has happened to social sector expenditure at the state level, especially on health and education.

3. Finances of the Union and State Governments: Revenue Deficits
Note: Surplus (+) / Deficit (-)
Revenue Deficit in
Revenue Deficit in
Revenue Deficit in
Revenue Deficit in RE
Revenue Deficit in BE
Chh, Goa, Har, HP, Ker, Mah, Miz, Pun Raj, TN, WB
AP, Ass, Chh, Har, HP, J&K, Jha, Ker, Mah, Miz, Pun, Raj, TN, Utt, WB
AP, Har, J&K, Ker, Mah, Pun, Raj, TN, Utt, WB
AP, Ass, Har, HP, Ker, Mah, Nag, Pun, Raj, TN, Utt, WB
AP, Har, HP, Ker, Mah, Pun, Raj, TN
11 States
15 States
10 States
12 States
8 States

4. Finances of the Union and State Governments: Fiscal Deficits
Note: Surplus (+) / Deficit (-) RE BE
FD > 3%
9 states
7 states
7states
14 states
12 states
19 states
11 states

5. Central Transfers to States: Tax Devolution & Grants-in-Aid

6. Trends in Aggregate Central Transfers
Composition of transfers have changed in favour of untied and formula based transfers (i.e., tax devolution)
Untied tax devolution account for 56.8% of total central transfers to States in BE

7. Trends in Central Transfers
While all States benefitted from increase in tax devolution in vis-à-vis Many of them experienced a reduction due to restructuring of central grants to states.
Total central transfers to States (including those going outside the State budgets) as percentage of GSDP declined in 9 states

8. States’ Own Revenues
There has been a decline in own revenues aggregated across all States as percentage of GSDP between and BE mainly due to the fall in own tax revenues.
Between and own-tax revenues as percentage of GSDP declined in 19 States.
AP, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Kerala, MP, Maharashtra, Punjab, TN, UP, WB, Arunachal Pradesh, Manipur, Meghalaya, Nagaland, Sikkim, Tripura and Uttarakhand.
The decline in own tax
revenues is due the decline
in revenues from State Sales
Tax/VAT and State Excise
which together account for
about 75 percent of states’
own tax revenues

9. Trends in Expenditures
The increase in expenditures between and is largely driven by the increase in capital expenditure
Capital expenditure increased from 2.27% of GSDP to 2.49%, the increase in revenue expenditure was 0.06% of GSDP.
But 12 states show a decline in capital expenditure as percent of GSDP during this period (Assam, Gujarat, Karnataka, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Sikkim, Tamil Nadu, Tripura and Uttarakhand)

10. Trends in Expenditures
In BE, both Revenue and Capital expenditure are budgeted to increase to 14.57% and 2.79% of GSDP respectively.
Capital expenditure on general services as percentage of GSDP has largely remained unchanged between and BE.
The entire increase in capital expenditures is primarily due to the increase in capital expenditure on economic and social services as capital expenditure on general services (as % of GSDP) has largely remained unchanged during this period.
Capital expenditure (% of GSDP) on
Social Services: 0.53% in to 0.70 % in BE
Economic Services: 1.58% in to 1.92% in BE
General Services: 0.13% in to 0.15 % in BE

11. Trends in Expenditures
Between and , total expenditure as % of GSDP on
General services: declined from 4.46% to 4.08% percent
Social services: increased from 5.81% to 6.71% and
Economic services: increase from 4.98% to 5.51%
The increase in social services expenditure is due to increase in expenditures in urban development, water supply and sanitation, housing, and welfare of SCs, STs and backward classes

12. Public Expenditure: Social Services State-specific variations in Y-to-Y: 2014-15 to 2015-16
Social Sector Expenditure/GSDP [Education, Health & Social Services] declined in the following States
Education, Health & Social Services: Andhra Pradesh, Meghalaya Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand (7 states)
Education & Health: Himachal Pradesh and Karnataka (2 states)
Education & Social services: Assam, Chhattisgarh, Gujarat, Maharashtra, Manipur, Tamil Nadu and West Bengal (7 states)
Health & Social services: Arunachal Pradesh (1 state)
Education: Haryana, Kerala, Madhya Pradesh and Rajasthan (4 states)

13. Expenditures on Social Services
General Category States
Correlation Coefficient between
Education-Health
0.811
Education-Social services
0.896
Health-Social services
0.762
Note: Based on Average of per capita expenditures for 2014=15 and
Does not include Goa.

14. Expenditures on Social Services
NE&H States
Correlation Coefficient between
Education-Health
0.891
Education-Social services
0.983
Health-Social services
0.936
Note: Based on Average of per capita expenditures for 2014=15 and

15. General Category States Correlation Coefficient between
Relation Between PCGSDP & Per capita Expenditures on Social Services – General Category States
General Category States
Correlation Coefficient between
PCGSDP-Education
0.869
PCGSDP-Health
0.806
PCGSDP-Social services
0.883
Note: Based on Average of per capita expenditures for 2014=15 and
Does not include Goa.

16. Correlation Coefficient between
Relation Between PCGSDP & Per capita Expenditures on Social Services – NE&H States
NE&H States
Correlation Coefficient between
PCGSDP-Education
0.726
PCGSDP-Health
0.623
PCGSDP-Social services
0.680
Note: Based on Average of per capita expenditures for 2014=15 and

17. Outstanding Liabilities
Outstanding liabilities as % of GSDP declined from 23.60% in to per cent in
Increased to 23.31% in and to 24.13% in RE
In , 18 States report an increase in outstanding liabilities, while 17 States budget for an increase in RE.
The increase in and could attributed to UDAY
Moreover, the new framework of borrowing recommended by FFC provided additional borrowing. 9 states eligible for additional borrowings of 0.25% and 7 states for 0.50% in

18. Outstanding Liabilities

19. What are the key findings?
Post-FFC award rise in untied fiscal space in aggregate though a few states have experienced a decline in transfers when “Actuals” of is compared with “Actuals” of , (RE) and (BE).
Share of untied transfer in total transfer has increased along with an overall increase in transfer when compared with
Own revenue to GSDP ratio is expected to remain flat when compared with
Aggregate expenditure shows an increase of more than 1.15 per cent of GSDP between and (BE).

20. What are the Key Findings?
During the same period FD is expected to decline from percent to 2.66 per cent of GSDP.
fiscal stance at the state level seems to suggest that states are reverting back to the FRA target of 3 per cent FD and achieving balance/surplus in revenue account.

21. Thank You