Indian Federalism, Economic Reform and Globalization

UC Santa Cruz Center for International Economics Working Paper No. 02-13

44 Pages Posted: 14 Aug 2002

See all articles by Nirvikar Singh

Nirvikar Singh

University of California, Santa Cruz

T. N. Srinivasan

Yale University - Economic Growth Center; Stanford Center for International Development (SCID) - Stanford Institute for Economic Policy Research (SIEPR)

Date Written: May 20, 2002

Abstract

In this paper we examine several dimensions of economic reform in India, in the context of the country's federal system and of globalization, i.e., we explicitly recognize that the national government has subnational governments below it, and that all these layers of government simultaneously interact with foreign governments and corporations in a global economy. We examine two groups of reforms, the first involving redrawing of state-market boundaries, and the second concerned with reconfiguring federal institutions themselves. The first group includes financial sector reforms, assignment of regulatory powers, infrastructure reform and development, and privatization. We note the progress made in financial sector reform but also the problems caused for the financial sector as a whole by state and central fiscal deficits. We discuss the extreme problems of the power sector, and the important federal dimensions that make reform more difficult there. We also highlight the regional concentration of FDI in India's more liberalized economy. The second group of reforms includes tax reforms, reform of center-state fiscal transfer mechanisms, and local government reforms. To some degree, these reforms in federal governance hold the key to opening the door to further reform elsewhere, by reducing the fiscal burden placed on the private sector by government deficits. We acknowledge the political economy aspects of reform of governance, and discuss possibilities for politically acceptable packages of fiscal reforms, such as combinations of changes in tax assignment that would be acceptable to the center as well as the state governments. We also discuss the possibility that growing regional inequalities might require the intergovernmental transfer system to be more efficient and effective in its objectives.

Keywords: Indian Federalism

JEL Classification: F23, O12

Suggested Citation

Singh, Nirvikar and Srinivasan, T. N., Indian Federalism, Economic Reform and Globalization (May 20, 2002). UC Santa Cruz Center for International Economics Working Paper No. 02-13. Available at SSRN: https://ssrn.com/abstract=315968 or http://dx.doi.org/10.2139/ssrn.315968

Nirvikar Singh (Contact Author)

University of California, Santa Cruz ( email )

Department of Economics
E2 Building
Santa Cruz, CA 95064
United States
831-459-4093 (Phone)
831-459-5077 (Fax)

T. N. Srinivasan

Yale University - Economic Growth Center ( email )

Box 208269
New Haven, CT 06520-8269
United States
203-432-3630 (Phone)
203-432-3635 (Fax)

Stanford Center for International Development (SCID) - Stanford Institute for Economic Policy Research (SIEPR)

Stanford, CA 94305
United States

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