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The study conducted for the Planning Commission covering the period 1991-2003, analyses the problems and reform issues in state finances. The study provides an analysis of states’ revenue expenditure on public goods, merit goods, non-merit goods and non-goods highlighting changes taking place. The analysis brings out fluctuating nature of the tax revenues and decline in the contribution from non-tax revenues. The analysis concludes that states’ fiscal balance deteriorated sharply from mid-nineties which led to states’ aggregate debt ballooning to constitute over 300 % of its total revenues. This study also presents a comprehensive analysis of central transfers to states. The study makes a number of recommendations for achieving sustained improvement in state finances.

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