Challenges in state budgeting

There must be stronger incentives for states to improve their fiscal planning and bring off-budget borrowings into the formal fiscal framework

- ADITYA SINHA

FRÉDÉRIC BASTIAT ONCE remarked, "Government is the great fiction through which everybody endeavours to live at the expense of everybody else." Nowhere is this fiction more evident than in India's sub-national public finance, where the illusion of infinite resources drives chronic overspending, mounting debts, and political short-termism. Sub-national fiscal responsibility legislations (FRLs) were introduced to impose discipline, but their design and enforcement vary widely across states, reflecting a troubling lack of uniformity. While some states adhere to stringent rules and demonstrate fiscal prudence, others exploit loopholes or ignore long-term consequences in favour of immediate political gains. This stark variation, coupled with economic mismanagement, creates a dangerous cocktail of fiscal instability. Without consistent standards and stronger accountability, India risks plunging into a fiscal disaster where one state's excesses could spill over and undermine the nation's economic foundation.