Fiscal Stress of Indian States: A Gradient Boosting Approach

This paper has studied the fiscal stress of Indian states during the period 2001-2022. The fiscal performance of the states have played a significant role in economic development in India. After the pandemic, the financial situation of states have worsened, which creates stress for meeting their expenditure requirements. Fiscal stress can be defined as a widening gap between revenue resources and expenditure. During the pandemic, the trends of expenditure have increased rapidly, but this increasing expenditure is not fulfilled with available resources. Thus, the government has coerced either the transfer of resources to meet their requirements or to reduce expenditures at all levels. For measuring fiscal stress, this paper has applied a gradient boosting approach. Further, the composite fiscal stress index has depended on three variables: fiscal balance, fiscal autonomy, and committed expenditure. The probability score of the index has varied from 0.44 to 0.55 . The results have indicated that 16 states out of 28 states have been highly stressed because the fiscal composite index has been observed to be more than 50 percent. Therefore, the state government should revise and improve their fiscal management policy to overcome their fiscal stress.