ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Linking Central Transfers to Fiscal Performance of States

Based on the recommendations of the Eleventh Finance Commission, the central government has instituted the Medium Term Fiscal Restructuring Programme (MTFRP). This paper evaluates the design and implementation of these schemes. The important conclusions of the paper are that (i) the size of incentive-linked transfers is too small to influence the fiscal performances of the states; (ii) the multiple schemes of incentives tend to create a system of segmented incentivisation; (iii) the design of the incentive-linked system has serious shortcomings, and (iv) the scheme fails to address the basic reasons for the deterioration in fiscal performances of the states.

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