Can Fiscal Transfers Help India Meet Its SDG Goals?

Abstract

This paper examines the possibility of using fiscal devolution in India to achieve the Sustainable Development Goals. We propose alternative weights and criteria to see how allocation between states would change if the Finance Commission of India (FC) used a framework that incentivizes achievements in social and environmental outcomes. Two different proposals are examined—one where level values of the female–male ratio, female literacy rate and forest cover are used to decide allocations and another where incremental values are used. The advantage of the second proposal is that it reduces historical bias. We calculate the alternative allocation that would emerge using these proposals and compare it with the actual allocation for the last three Finance Commissions—XIII to the XV. We find that the reallocation among the states incentivizes better performers and also help India achieve the goals for sustainable development. JEL Classification: H77, Q56, Q58