Studies in Indian Public Finance

Economies throughout the world saw an unprecedented past due to Covid-19, leading to several stimulus packages announced by the global governments to revive their economy and boost both the production and consumption sectors. This recovery policy in several countries has led to recession alongside with raising inflation in the market (World Bank 2020). In this situation, policymakers and governments are confronted with the challenges of restructuring the policies to fit the current circumstances and learn from the past. The historical understanding of the economy become critical in situations like this rather than overstate the empirical numbers. The scholarship on public finance is a crucial aspect of governance that caters to and capacitates the government toward the development and progress of the state (Rajkumar and Swaroop 2008). It illustrates the goals and policies of the state. Suppose the government consider the inputs from the citizens and take into consideration different sections of society, it should also ensure that the public finance guarantee an inclusive and egalitarian and cater the needs of all sections of the society. Underpinning this state of affairs, the book Studies in Indian Public Finance, by M. Govinda Rao portray the Indian experience of public finance in both practical and historical sense. The author goes into depicting great length about the fiscal and macroeconomic picture of India rather than concentrating on a micro view, and it covers public expenditure, tax policy and its reforms, deficit and public debt and the federal system.

The book combines theoretical and practical aspects of public finance in author's perspectives on policies and reforms. It gives a frontline administrative view and constitutional understanding of taxation and expenditure, illustrating fiscal federalism through major Centrally Sponsored Schemes in India. Although the book covers Indian experiences, the democratic federal structure with a large population, the implications of scholarship on public finance have implications to go beyond the specialized Indian context.

The book is covered in nine chapters. Beginning with the overview of the Indian economy, the author establishes the pace followed throughout the book in Chapter 1. Chapter 2 and 3 explain public choices and public spending patterns. ‘Why do we need government?’ is the first and foremost question asked in the book at the beginning of Chapter 2. Answer unfolds to this question as the author brings out the need for government to represent the positive and normative explanations through the philosophical and economic theories establishing the role of state. The author brings out the fundamental question on the size of public spending required and put forth the concept of productivity of input to output ratio of public expenditure. The author explains, ‘reprioritising the spending decision’ is crucial through reallocation from the low productive sectors without conciliating the political agendas (p. 42).

The fundamental focus of public finance practice and changes on framing the macroeconomic policies through times under the Indian fiscal system and the federal relationship of the states is explained in the book. The following section deals with taxation covering Chapters 4 and 5. The evolution of tax policy and tax reforms combined with the theoretical understanding is explained. It becomes very significant in understanding the public finance literature to understand the development strategies adopted by various political and technological landscapes. It not only brings out different tax policies but also points out the issues existing in the tax system in India (pp. 61–71). A detailed note on Goods and Services Tax (GST) is found in Chapter 5. It illustrates a comparative analysis of the GST regimes in different countries and brings out the features of the Indian tax system. It is worth noting that the literature on GST in India is very few, and a detailed account and empirical notes are significant for the reader. Chapter 6 presents the understanding of the macroeconomics of Indian public finance with questions on deficit and debt. Underlining the basic theories on public debt from classical, Keynesian and Ricardian interpretations (pp. 119–122), the author depict the ill effects of a large fiscal deficit leading to an unstable economy. The main objective of this chapter is to integrate considerations on quality and management of fiscal discipline. The Fiscal Responsibility and Budget Management Act (FRBM) has been discussed widely with the sustainable debt question existing in the scholarship.

The author provides a detailed account of the federal relationship to reinvent fiscal policy by strategically repurposing public institutions in Chapter 7. Drawing the fiscal decentralization theorem, the case of Indian federalism is placed through constitutional provisions. A critical analysis of the institutional mechanism of the federal system and the evolution of the fiscal federal policies in the case of the Indian federation is explained in length in this chapter. A detailed account of the fiscal transfer system through the inter-governmental fund transfers accounting for revenue and capital expenditure is briefed in Chapter 8. The theoretical underpinning of the intergovernmental issues on efficiency and equity and the trade-off on growth is presented and the existing debates in the literature are established. The author argues that in order to ensure fiscal prudence and debt sustainability, fiscal laws attempt to correct imbalanced incentives and minimize overspending pressures leading to efficiency and efficacy.

The last chapter, Chapter 9, presents the pandemic stock through different phases of Covid-19. A comprehensive depiction of the impact of Covid-19 is presented, which makes the book contemporaneous in its analysis. Understandings of the pandemic posted systematic shocks and its influence on the macro-economic factors brings back to the question of need/role of government asked at the beginning of the book. The book concludes with the roadmap for reforms in public finance needed in the Indian economy.

The major strength of this book is its utilization of empirical facts to back up the arguments. The author employs various data to illustrate the ideas and critically examine current programmes and changes in recent years, outlining their merits and flaws. A significant portion is devoted to providing a fundamental review of India's fiscal set-up in the federal context. Although the book portrays the overall Indian experiences, in some cases like FRBM, the author fails to mention the contractions and limitations placed on federal states, which affect their public expenditure capacity and quality. The question of the role of the state is, although widely discussed in the book, the choice between ‘welfare state’ or ‘market state’ is not established in the book. However, the book provides significantly experienced policy practitioners and academicians of public finance with a profound grasp of how governments work.