without an infusion of central support, given the severity of the state’s fiscal crisis in
1995. In contrast, Karnataka under Krishna was ruled by the Congress Party, which sat
in opposition at the Center, and therefore it could not match the bargaining power of
Naidu’s TDP as a BJP coalition supporter. Thus, not only was Krishna’s relative fiscal
prudence more in line with the state’s traditions, it also reflected less budgetary latitude
given by New Delhi.
Under India’s system of fiscal federalism, which is quite top-heavy or “vertically
imbalanced” by international comparison,
70
the Center accounts for the majority of
revenue intake whereas the states are responsible for most expenditures—including key
aspects of social sector and welfare spending. While some elements of the complex
fiscal transfer system are formula-based and reasonably transparent, others are open to
central discretion and political bargaining. Recent statistical analyses show that there
have been significant partisan biases in resource allocation over the years. Stuti
Khemani, a policy researcher at the World Bank, has shown that for sample data covering
1972-95, states with governments belonging to the same party as that governing at the
Center (usually the Congress Party) were on average permitted to run budget deficits 10
percent higher than other states, supported by higher shares of central transfers.
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In the
new phase of coalition governance since 1989, evidence from work by Jonathan Rodden
and Steven Wilkinson further suggests that member parties with pivotal power to “make
or break” the alliance—as Naidu’s TDP held in the late 1990s and early 2000s—are able
to translate their political clout into increased budgetary resources for their states.
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While Rodden and Wilkinson’s findings are informative, they essentially corroborate
what Naidu himself has already been admitted:
The Telugu Desam Party’s role in the United Front government contributed to
better Centre-state relations, improved financial and administrative devolution,
and led to a record quantum of funds under various sectors to Andhra Pradesh.
A number of long-pending issues were resolved and many projects received
clearance. This, we believe, is as it should be.
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Convention