Openness, fiscal reforms & Indian federalism

The subject matter relating to the relationship between the Centre and States has evoked considerable attention during last six decades. It includes political, economic and other dimensions of federalism but the present discussion is mainly focusing on the economics of federal finance or fiscal federalism. Openness has distinct effect on structure of public finance and expenditure of governments as it influence the expenditure and revenue side of the budget. In India all layer of governments; Centre, state and local bodies are interacting with foreign government and corporation in the global economy. The paper tries to understand recent dynamics in Indian fiscal federalism by disconcerting interaction among central, state and local government during the reform period. There has been significant improvement in the fiscal ratios of the States in recent years, which coincides with the era of restructuring of finance of the States. However it is also observed that there has been an increase in the disparity in own revenues and thereby the inequality in development expenditure across the States.