Thanks to the enforcement of the fiscal responsibility and budget management legislation by most states, there is a general reluctance among state finance ministers to exceed the level of the fiscal deficit, stipulated at three per cent of the state gross domestic product.

Most states now try to stay within that limit even if that means raising more revenues or foregoing expenditure on populist schemes. That fiscal discipline, mind you, is an outcome of the realisation that any slippage on the deficit front would deny the states the benefit of financial grants and allocations from the Centre. In other words, the carrot-and-stick policy seems to have worked in ensuring that states remain fiscally responsible. Read More