The hopes of public-spending-led recovery in the aftermath of covid pandemic could be dashed by fiscal constraints faced by the States. What are the constraints faced by the states. 10 marks

Mentor’s comment-
  • In the intro, mention that spending by the State governments constitutes a significant part of the public spending.
  • In the body mention various constraints faced by the states-collapse in the revenue of states and transfers from the Centre result in less spending by the states offsetting higher spending of the Centre. Revenue surplus states will run revenue deficit budgets, reluctance on the part of states to borrow or their inability to borrow etc.
  • Conclude by mentioning the need to take into account the decline in state spending while projecting the growth.
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