Fiscal Decentralisation in India: An Evaluation of the Present Situation Based on Theoretical Insights

Abstract

India has been experiencing the second wave of decentralisation by giving constitutional status with a provision to transfer expenditure activities and revenue raising powers to the local governments since the 1990s. However, decentralization has not been introduced seriously in India except in some states; and even in these states, decentralisation is being practiced as assigning public expenditure activities without transferring additional tax revenue.  Theories argued that to ensure efficient provision of goods and services, all aspects- fiscal, administrative, and political- of decentralised planning should be simultaneously implemented. Also, a local government that meets a substantial portion of their expenditure from own sources tend to be more accountable to people and have the incentive to provide public goods in an effective and efficient manner because of the self-enforcing factors exists in all federations. Therefore, the present paper examines the extent or degree of fiscal decentralisation in India after three decades of its experience using the indicators derived mainly by World Bank and found that the degree of decentralisation is very less in India and its extent is coming down during the period 2006-07 to 2021-22.