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Issues and Challenges in Fiscal Decentralisation to Rural Local Governments of North-Eastern States in India

By Kausik K. Bhadra and Panchali Banerjee

North-eastern states in India are the most fiscally stressed states. Due to their unfavourable geographical terrain, the states have limited capacity to mobilise revenue from own sources, which has made them excessively dependant on intergovernmental fiscal transfers. In this regard, the study, at the outset, attempts to understand the underlying issues in devolutions of functions, functionaries and finances, and subsequently empirically explores the issues in fiscal decentralisation to the PRIs through flypaper effect for these states using local level fiscal data. Notwithstanding sparse own revenues of the PRIs, the result from Arellano-Bond dynamic panel model shows that local expenditure is more responsive to local own revenues than transfers, hence, there is no flypaper effect. The sparse and incongruous devolutions of functionaries and finances relating to the devolved functions signify that the completion of clear activity mapping is imperative so that the the devolved funds would not go wasted.