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A Plan for Ending Macroeconomic Deterioration in India
Catriona Purfield (2004) argues that decentralization has caused a dilemma in India which is related to several factors, including transfer dependence, soft budget constraints, contagion, and other state-specific problems. Based on a panel on the years 1985-2000, Purfield argues that decentralization in India has caused a dramatic deterioration in the fiscal welfare of the states and the macroeconomics of India as a whole. The problem, she writes, is that the centralized government keeps bailing out the individual states, causing a common pool problem and a moral hazard (Purfield, 2004, p. 1). She argues for a return to a more centralized government with hard constraints on bailouts to aid the Indian economy.
