Study claims Indian states follow a flawed ‘spend-tax’ model to overcome fiscal issues

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A new study analyzing the revenue-expenditure nexus of Indian states has revealed that state government spending drives tax revenue growth, supporting the ‘spend-tax’ hypothesis. Conducted by researchers Himani Baxi and Dhyani Mehta from Pandit Deendayal Energy University, the study used a panel Autoregressive Distributed Lag (ARDL) approach -- statistical technique used to analyze the long-term relationship between variables -- to examine fiscal trends across 29 Indian states from 1990 to 2022.

The research found that state expenditure positively impacts tax revenue in both the short and long run. A 10% increase in state spending leads to a 1% rise in tax revenue in the short term and an 1.8% increase in the long term. Additionally, state GDP growth significantly boosts tax revenue, with a 10% rise in GDP resulting in a tax revenue increase of 8% over the long term.

The findings challenge conventional fiscal theories that suggest taxation should determine spending. Instead, Indian states appear to spend first and then generate tax revenue to match expenditure needs. This contrasts with studies in other countries, where the tax-spend or fiscal synchronization models are more commonly observed.

However, the study highlights concerns over states’ growing dependence on central government tax transfers, which may weaken fiscal autonomy. It suggests that states should explore alternative revenue sources, such as non-tax revenues, and focus on efficient public service pricing to reduce dependency on central funds.

With rising infrastructure costs and the reintroduction of old pension schemes, the Reserve Bank of India has warned that controlling fiscal deficits will be increasingly difficult. The study emphasizes the need for a re-evaluation of fiscal decentralization policies to ensure sustainable state finances.

The research has been published in the International Journal of Social Economics and is expected to influence future discussions on state-level fiscal policies in India.

Ahmedabad world’s least climate resilient major city: AlphaGeo study

By Rajiv Shah A new study has ranked Ahmedabad as the least climate-resilient major city in the world , highlighting a dangerous gap between the city’s extreme physical vulnerability to climate hazards and its capacity to adapt. Cited by The New York Times , the analysis, conducted by geospatial artificial intelligence firm AlphaGeo , places the Indian city at the top of a list of global urban centres most exposed to climate risk.

The making of a self-made woman: How eighty sheep changed everything for Kalawati Ninama

By Vikas Meshram* About forty-two kilometres from Rajasthan's Banswara district, in the tribal heartland of Ghatol block, lies the small village of Ubapana. This is where Kalawati Ninama, her husband Dhulji, and their four children make their home. Their days unfold much like those of their neighbours—bustling mornings, long hours of farm labour through the afternoon, and evenings spent tending livestock. For this family, farming and livestock were once simply a means of putting food on the table. Today, they have become the sturdy foundation of something far greater: genuine self-sufficiency.

India has spent billions on skilling. Where are the jobs?

By Vikas Gupta India loves the photograph of a certificate ceremony. A minister on a stage. A banner bearing the word “skill.” Young people holding folders that promise a future. It is a reassuring image because it tells us the problem has a manageable answer: train the young, make them job-ready, and work will follow.

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