No abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The fiscal performance of the States in India has been an area of concern for quite some time. The Twelfth Finance Commission (TFC) recommended a three-pronged strategy to alleviate States' fiscal distress, built around greater orientation toward market discipline, incentives for fiscal consolidation targets, and commitment to fiscal correction. We find that States have created fiscal space through raising revenues and reducing and reprioritizing expenditures. Looking ahead, expansion of fiscal space is essential to meet the States' large infrastructure and social needs in order to alleviate bottlenecks to growth. This needs to be accomplished without undermining fiscal sustainability.

India needs to orient its strategy towards economic and social development. It has adequately recognized the significance of Official Development Assistance (ODA) and in the process of activating its energies towards effective participation of such ODAs. This paper makes an attempt to critically examine various trends of ODA and how they can contribute to the growth and development of India. It tries to strengthen India's knowledge base through external assistance and suggests how challenges like poverty and infrastructure constraints can be tackled by effectively channelizing external assistance. It also tries to analyze India's experience with aid and indicates ways for adopting a new paradigm for overall development.