In what way did fiscal discipline reforms affect center-state financial relations post-1991?
Show answer & explanation
Correct answer: B
Explanation
Answer: States had to adhere to fiscal targets
Explanation
After the 1991 economic reforms, India introduced strong fiscal discipline measures to improve macroeconomic stability. These reforms reshaped center–state financial relations.
Under institutions like the Finance Commission of India, states were encouraged (and later required through various fiscal responsibility frameworks) to maintain:
Controlled fiscal deficits
Sustainable borrowing levels
Efficient public expenditure
This meant states could no longer spend freely and had to follow structured fiscal targets to maintain financial stability.
Additional Key Points
Introduction of Fiscal Responsibility and Budget Management (FRBM) Act further strengthened discipline
States became more dependent on central transfers and grants
Borrowing by states came under stricter monitoring
Encouraged better budget management and debt control
Shift from relaxed planning-era finances to rule-based fiscal governance
Potential Questions & Answers
Q. What was a key impact of post-1991 fiscal discipline reforms on states?
Ans: States were required to adhere to fiscal targets.
Q. Which constitutional body manages fiscal distribution between Centre and States?
Ans: Finance Commission of India