Efficiency and Fiscal Performance of Indian States: An Empirical Analysis Using Network DEA

Abstract

The purpose of this empirical study is to evaluate and explain the fiscal performance of Indian states from 2009-10 to 2014-15 using a network DEA approach. While previous research has compared India's fiscal and developmental performance at the sub-national level, this study departs from the extant literature by evaluating state-wise performance at a disaggregated level. The states are first compared based on their tax mobilization and then evaluated in terms of development spending and overall financial performance. Censored regression analysis is also used to explore the impact of outstanding liabilities on GDP ratio, Gross Capital Formation, and GDP growth rate. The results indicate a positive association between efficiency scores and GDP growth rate and log of Gross Capital Formation. However, the linkage between efficiency and the outstanding liabilities ratio is negative. These findings suggest the need for a balanced approach to government spending to avoid the recurrence of the debt crisis in the future.