Abstract   

The Indian states after the liberalization needed fiscal discipline to ensure sustainability and economic stability. The study of the FRBM Act explores its scope and scale of applicability to ensure fiscal discipline. The complete legal framework of the FRBM Act was discussed while discussing the state-level fiscal performance by keeping it parallel to the guidelines of the FRBM limits and recommendations. The interdependent relationship of the Centre and the State have been analysed. The Pandemic’s impact on the fiscal indicators has been observed with its impact on the economic health of the government. A comparison of states has been done by case studies of fiscal policy implementation between Maharashtra and Punjab underscoring the challenges of populist policies and rational decision-making. Based on these studies, several recommendations have been provided to improve fiscal prudence in the country.

Literature Review 

The study ‘Understanding the Evolution of Fiscal Performance of Indian States’ sheds light on the fiscal performance of 21 Indian states from 1980 to 2018. It provides an explanation of fiscal indicators and how it evolved over the years. The study fails to provide the fiscal performance of all the states and doesn’t give a detailed explanation of data and events. 

The paper ‘State Finances in India: Managing Fiscal Risks and Sustaining Recovery’ talks about the fiscal correction by states post-pandemic. It talks about how the recovery of the economy led to the underutilisation of funds and also talks about the failure of DISCOMs and how the UDAY yojana has increased the fiscal deficit. Despite this, the study fails to look at the fiscal performance during the pandemic. 

The paper ‘The Indian Fiscal Responsibility Laws’ examines India’s adoption of the FRBM Framework to maintain fiscal discipline. This also emphasises the ways to maintain stability in the economy. The other papers talk about the details of India’s fiscal health during the Pandemic, the fiscal relationship between the centre and state and the fiscal indicators of Maharashtra and Punjab. The aim of these is to recognise the state-level fiscal performance and fiscal prudence in India.

Introduction 

Fiscal Prudence is defined as the responsibility of management of public resources and finance to ensure economic growth and stability. In India, the states enjoy a small amount of fiscal autonomy with a stronger dependence on the centre leading to states leading to different outcomes for different states. The centre and the state after 1991’s liberalisation, have been working towards a more disciplined fiscal balance to ensure the stability of growth and minimise unwanted risks. The governments started to manage funds but to bring a nationwide framework to manage central and state balances, the Government Of India introduced the Fiscal Responsibility and Budget Management Act. The government has introduced several policies like loan swaps, etc to reduce the fiscal deficit in several Indian states. The Indian states were still suffering from many factors like poverty, resource mismanagement, terrorism and trying to play populist ideas. 

The Indian Government in 2015 introduced the UDAY scheme which increased the fiscal deficit of the states and in 2016, GST was introduced which tried to consolidate the confusing and multiple taxing structure present before. These policy moves changed the fiscal situation of the states and how taxes and revenue structure were perceived. In 2019, the pandemic starkly widened the fiscal deficit due to increased expenditure and economic shutdown across the country. These events have played a strong role in the implementation of the fiscal rules and impacted the economic health of the states. This paper thus delves into the states’ fiscal prudence, its relationship with the centre and the strong impact of the pandemic. The paper also analyses the economies of Maharashtra and Punjab to understand the fiscal strategies determining their fiscal health, further discussing ideas to solve the arising problems. 

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