Partisan Politics and Intergovernmental Transfers in India Stuti Khemani




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Table 5

Effect of Partisan Politics on Intergovernmental Transfers

(t-statistic in parenthesis)



Variable

Total Transfers


(Statutory Transfers + Plan Transfers)


Political affiliation

56.29

(2.13)


Affiliation * Proportion of seats controlled by national ruling party



-88.49

(-2.91)


Real state income per capita

0.004

(0.60)


Total population

-0.001

(-1.33)




N = 345

R-sq = 0.79



Note: State fixed effects and year effects included; OLS regressions with robust standard errors; Dependent variables and state income are in per capita 1992 rupees


Table 6

Effect of Other Political Variables on Intergovernmental Transfers

(t-statistic in parenthesis)



Variable

Total Plan Transfers

Statutory Transfers


Political affiliation

(=1 if center and state govts. belong to the same political party)


84.21

(2.76)


-39.48

(-3.07)


Affiliation * Proportion of seats controlled by national ruling party



-108.58

(-3.22)


20.58

(1.79)


(1- Affiliation) * Proportion of seats controlled by national ruling party



-38.93

(-2.26)


-4.94

(-0.44)


Coalition government

(=1 if state executive consists of a coalition govt.)


7.94

(0.57)


-18.65

(-2.32)


State election year

(=1 in the year preceding a state election)


-10.93

(-1.29)


5.39

(1.30)


(1- Affiliation) * Years1990-1995

32.75

(1.63)


-1.75

(-0.16)


Real state income per capita

0.01

(1.65)


-0.003

(-0.99)


Total population

-0.002

(-2.02)


0.0001

(0.36)




N = 345

R-sq = 0.65



N = 352

R-sq = 0.83



Note: State fixed effects and year effects included; OLS regressions with robust standard errors; Dependent variables and state income are in per capita 1992 rupees




Table 7

Effect of Partisan Politics on Specific-Purpose Grants

(t-statistic in parenthesis)



Variable

Grants for Central Schemes


Political affiliation

(=1 if center and state govts. belong to the same political party)


3.38

(0.70)


Affiliation * Proportion of seats controlled by national ruling party



-0.93

(-0.18)


(1- Affiliation) * Proportion of seats controlled by national ruling party



11.41

(2.64)


Real state income per capita

-0.004

(-1.88)


Total population

-0.0002

(-0.91)




N = 351


R-sq = 0.71



Note: State fixed effects and year effects included; OLS regressions with robust standard errors; Dependent variables and state income are in per capita 1992 rupees




1 Specific purpose transfers for central schemes consist of both grants and loans. Grants for central schemes are about 16 percent of total central grants (including plan grants and statutory revenue transfers), while loans for central schemes are about 8 percent of total central loans.

2 An example from the state of Andhra Pradesh is illustrative in this context. The Congress party lost control of the state government in Andhra Pradesh in the 1983 state elections to a new regional party, the Telegu Desam. In the next national elections in 1984, even though it won an overwhelming majority of seats in the national legislature, the Congress lost most seats from Andhra Pradesh to the Telegu Desam, despite the latter’s novice status in national politics.


3 Each national electoral district is wholly contained within some state’s borders. States differ in the number of districts for the national legislature that is allotted to them, that is denoted by Ns in the model above.

4 In case of a clear majority, as in more than 50 percent of the seats, the party is always invited by the President (the constitutional head) to form the government. However, in recent years no single party has won even close to 50 percent of the seats, in which case coalitions are built across party lines that need to face a confidence vote in Parliament in order to form the government.

5 Detailed analysis of fiscal federalism and inter-government transfers in India, with exhaustive references, can be found in Rao and Chelliah (1991) and Rao and Singh (2000, 2001).

6 However, Rao and Singh (2000) provide anecdotal evidence to suggest that the members of the Finance Commission have close bureaucratic ties with the central executive, and are often transferred midway through their tenure on the Commission to coveted positions in the central administration.

7 I am grateful to Tim Besley of the London School of Economics and to Bhaskar Naidu of the World Bank’s South Asia regional divison for providing me with some of this data that had already been compiled in their research groups.

8 These 15 states are: Andhra Pradesh, Assam, Bihar, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh, and West Bengal. A sixteenth major state, Jammu and Kashmir, has been excluded because of the political uncertainties in the region that continue to this day.

9 The distribution formulae for both statutory transfers and plan transfers have also given weight to measures of revenue potential of states. We control for this through the inclusion of state income and state fixed effects, since revenue potential of states is arguably invariant over time and largely determined by state income. In recent years, outside of the sample under study, some weight is being placed on measures of state tax efforts to provide incentives for additional own revenue mobilization.

10 The fiscal year in India runs from April 1 to March 31, which is the period over which annual fiscal variables are measured. Hence transfers received by any state in year 1988, for example, relate to receipts between April 1988 and March 1989. Most elections in India (both to the state and national legislatures) have occurred between the months of January-April. Therefore, the political variables in year 1988 are derived from elections that occurred between January and April 1988, and hence predetermined with respect to the decisions over fiscal transfers.

11 The special category states are the smaller states, presumably with greater fiscal disadvantages, and the north eastern states with tribal populations that are both politically important (due to continuing secessionist movements) and economically needy.

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