July 30, 2020

Grants from Centre and States' Fiscal Marksmanship

In this paper, we undertake a study of 28 states to establish the issues with their revenue budgets’ fiscal marksmanship. We particularly focus on the grants received from the Central government. Within grants, we find state plan schemes and centrally sponsored schemes to be the most volatile. Our analysis looks at three key stakeholders in the budget-making process and their role in poor fiscal marksmanship. These are the Centre, the states and the Finance Commission. The actuals could miss budget estimates due to the Centre misprojecting its revenues or expenditures, the states misprojecting their own revenues, or the Finance Commission making errors while recommending grants. P​oor estimation methods, weak capacity in drawing up budgets and implementing projects, specific conditionalities imposed either by the Centre or the Finance Commission, and exogenous and random shocks that cannot be controlled for — all affect marksmanship of the states’ revenue budgets.

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