Abdul D Abiad - Strengthening Indias Intergovernmental Fiscal Transfers: Learnings From the Asian Experience

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STRENGTHENING INDIAS INTERGOVERNMENTAL FISCAL TRANSFERS

LEARNINGS FROM THE ASIAN EXPERIENCE

Abdul D. Abiad, idem Akn, Bruno Carrasco, Jurgen Conrad, Shikha Jha, Navendu Karan, Sonalini Khetrapal, Abhijit Sen Gupta, Rishav Singh, and Lei Lei Song

DECEMBER 2020

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

2020 Asian Development Bank

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines

Tel +63 2 8632 4444; Fax +63 2 8636 2444

www.adb.org

Some rights reserved. Published in 2020.

ISBN 978-92-9262-326-5 (print); 978-92-9262-327-2 (electronic); 978-92-9262-328-9 (ebook)

Publication Stock No. TCS200352

DOI: http://dx.doi.org/10.22617/TCS200352

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned.

By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess.

This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material.

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Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda.

Notes:

In this report, $ refers to United States dollars.

ADB recognizes China as the Peoples Republic of China.

The fiscal year (FY) of the Government of India and its agencies ends on 31 March. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2019 ends on 31 March 2019.

In 2011, the Government of India approved the name change of the State of Orissa to Odisha. This document reflects this change. However, when reference is made to policies that predate the name change, the formal name Orissa is retained.

Cover design by Francis Manio. On the cover: Floral pattern is inspired by the Indian culture and art. Vines represent the growth and paths for distribution from a common source.

Contents

Tables, Figures, and Boxes
About the Contributors
Foreword
Acknowledgments
Abbreviations
Executive Summary
I.	Mechanisms for Fiscal Transfers
A. The Institutional Arrangement for Fiscal Transfers in India
B. Strengths of the Institutional Arrangement in India
C. Limitations of the Institutional Arrangement in India
D. Comparison of the Institutional Arrangement with Other Asian Countries
E. Recommendations for the 15th Finance Commission
II.	Design of Intergovernmental Fiscal Transfers
A. The Need for Intergovernmental Fiscal Transfers
B. Intergovernmental Fiscal Transfers in India
C. Intergovernmental Fiscal TransfersAsian Experience
C.1. Australia
C.2. Indonesia
C.3. Japan
C.4. Peoples Republic of China
C.5. Republic of Korea
D. Summary of Recommendations for the 15th Finance Commission
III.	Incentivizing Subnational Government Performance through Transfers
A. Performance-Based Transfers for Improved Governance
A.1. Rationale for Promoting Good Governance
A.2. Quality of Governance and Efficiency of Social Sector Expenditures in India
A.3. Measuring Quality of Governance in IndiaThe Governance Index
A.4. Strengthening Allocative Efficiency of Budget with Medium-Term Expenditure Framework
A.5. Recommendations for the 15th Finance Commission
B. Performance-Based Transfers for Improved Service Delivery in Health Sector
B.1. Overview of Health Sector in India
B.2. Transfers in Health Sector in India
B.3. Transfers in Health SectorAsian Experience
B.4. Health Sector Recommendations for the 15th Finance Commission
C. Designing Performance-Based Transfers for Improved Service Delivery in Education Sector
C.1. Overview of Education Sector in India
C.2. Transfers to Education Sector in India
C.3. Transfers in Education SectorAsian Experience
C.4. Education Sector Recommendations for the 15th Finance Commission
D. Designing Performance-Based TransfersSummary of Recommendations
D.1. Proposed Framework on Performance-Based Transfers
D.2. Leveraging Support from International Financial Institutions for Better Results
IV.	Conclusion
Appendixes
	Institutional Structure of Fiscal Transfers to Subnational GovernmentsInternational Case Studies
	Evolution of Indias Fiscal Devolution Formula
	Intergovernmental Fiscal TransfersInternational Case Studies

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