Lekha Chakraborty

The principle of fiscal federalism enshrined in India's Constitution is under severe strain today. This book is a key addition to understanding the challenges involved. The authors capture the implications of the abolition of the Planning Commission, the introduction of the controversial Goods and Services Tax regime, and formulation of Terms of Reference of the 15th Finance Commission. These include the increase in vertical fiscal inequity, distortion of fairness in inter-State distribution, and erosion of policy autonomy at the level of the States. Kerala has seen a unique effort to advance the devolution process from the State level to the panchayats and municipalities. Besides taking the path-breaking decision to devolve 40 per cent of State plan funds to local government institutions, the Kerala experiment involved a mass campaign to build capacity of local government. Kerala's Finance Minister Thomas Isaac and his co-authors argue that protecting and enhancing devolution is essential for strengthening popular participation in development decision-making. This book is being published at a time when some of the State finance ministers have been leading a campaign on the need for revisiting certain Terms of Reference of the 15th Finance Commission. This involvement in a movement to reverse the tendency to erode both the fiscal and policy autonomy of the State gives the book an edge and urgency that will place it at the centre of the debate on the attack on Indian federalism.

This book is an analytical examination of financing and public service delivery challenges in a decentralized framework. It also provides critical insights into the effectiveness of public expenditure, through benefit incidence analysis of education and healthcare services in India. The benefits of decentralization always come with conflicts and trade-offs. By unpacking the process of decentralization, the authors identify that 'unfunded mandates', arising from the asymmetry between finances and functions at local levels, are a major challenge. The analysis is carried out by distilling the existing studies in this area, and through an empirical investigation of public finance data at different public sector levels in India, as well as in some selected developing countries. Using the household survey statistics of consumption expenditure, an analysis of utilization or benefit incidence of public spending on social sectors in India is achieved, covering education and health sectors. This title is available as Open Access on Cambridge Core.