Fiscal fetishism and the warped narratives on state finances

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Editor's note: I am a man more sinned against than sinning. (King Lear, Act 3, Scene 2) If you have been following mainstream media over the past few weeks, you would not have missed the carpet bombing against states on their financial situation. It all began in June, when the Reserve Bank of India’s RBI Bulletin carried an empirical analysis highlighting the “fiscal risks” faced by some states. The analysis was eminently worthy of a reasoned discussion. But soon after its publication, several motivated press reports began to appear. These reports used—and misused—figures from the paper to build doomsday scenarios. Following this, in July, Prime Minister Narendra Modi blamed a few states and political parties for promoting a “revadi culture”. More recently, N.K. Singh, chairperson of the 15th Finance Commission, advocated the need to link FC transfers to states with their “spending on freebies”. In all, we now have a dominant narrative where states are caricatured as irresponsible in financial management and even resembling “Sri Lanka”. In this newsletter, I will discuss state finances from an alternative perspective, essentially arguing that the …