Impact of fiscal responsibility legislations on state finances in India

Abstract

The study aims to evaluate the impact of Fiscal Responsibility Legislations (FRLs) on state finances in India, considering the panel data for 28 states for the period 2000-01 to 2009-10. Fixed-effect and GLS for the random-effect model techniques are used to get regression coefficients. It is observed that the Fiscal Responsibility Legislations (FRLs) positively, affect the revenue receipts. The FRLs are effective in reducing the gross fiscal deficit and revenue deficit. The policy of FRBM is important to enhance states own revenues, check increasing expenditure and limit deficits under feasible targets. Furthermore, there is a need to develop institutional set up for effective monitoring of the fiscal performance of the state and review of Fiscal Responsibility and Budget Management targets.

Keywords

• State finance
• fiscal policy
• revenue
• deficit
• panel data model