Sub-national fiscal reforms  Reflecting the fiscal stress, the expenditure for developmental activities, which are directly related to growth, has suffered; on the other hand, expenditure on non-developmental purposes, largely committed, has witnessed a steady rise. Fiscal adjustment based predominantly on expenditure reduction may have adverse implications for growth, particularly when government expenditure in India is lower than that in the OECD countries.
It was felt that fiscal strategy based on revenue maximisation could provide necessary flexibility to the pattern of expenditure. Thus, sub-national fiscal adjustment started in late 1990s as follows, motivated, among others, by the reform-linked assistance (i) from the Centre as part of the Medium-Term Fiscal Reform Programme in line with the Eleventh Finance Commission and (ii) from the multilateral agencies.