Fiscal Prudence in States is the Key to High Growth

States hold the key to India’s growth, but prudent management of resources is crucial. Fiscal discipline today safeguards prosperity and stability for tomorrow

- JAYAPRAKASH NARAYAN

In my last column (India’s eco growth in the face of restrictive trade practices, FPJ, 6th Oct, 2025) I discussed the Union's impressive fiscal management over the past decade which gives us the fiscal room to face global headwinds with confidence. I also pointed out that states are where the governance is, and the real challenges to boost growth lie in states. Let us take a cursory look at the finances of states in this column.

First let us look at the pattern of expenditure in various tiers of government. The states are given the major constitutional responsibilities of governance and service delivery. Therefore rule of law, basic infrastructure, education and healthcare are largely states’ functions. States also assumed a huge burden of short-term, individual welfare programmes. The first principle of economics is that wants always exceed resources. There are always resource constraints in government. Given our fiercely competitive politics and high degree of polarization, states tend to complain that they are not getting enough money from the Union. But the truth is that the Union too has major responsibilities — national security, big infrastructure, food and farm subsidies and many welfare programmes. And resources are scarce.