Challenges of sub-national fiscal correction
The HinduRecent concerns over excessive doling out of freebies by States are often interpreted as intrusion into the federal powers of the States. As both the Union government and States are expected to work closely in a co-operative federal structure, frictions arising out of these exchanges might have repercussions on both resource sharing and expenditure prioritisation. While States demand more fiscal space for increasing discretionary spending, the Centre is pushing for more fiscal discipline by reducing the scope for discretionary spending and limiting States to focus on mandatory expenditures. Fiscal consolidation Sustained increase in welfare expenditure by the States leads to fiscal expansion, which necessitates additional resource mobilisation. With dwindling revenue receipts, many States had to opt for expenditure compression to adhere to the fiscal responsibility legislation target.
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