State finances of Madhya Pradesh mirrors the fiscal situation of states in India and emerging challenges that include lack of buoyancy of internal revenue, prolonged slow economic growth and uncertainties regarding central transfers, and impact of recommendations of the 15th Finance Commission. While the State adhered to fiscal rules, the fiscal space available has been shrinking and coming years will test the ability of the Government to adhere to numerical fiscal targets and to avoid fiscal stress. The State’s achievement with regard to human development, particularly education and health indicators have not been impressive. The fiscal policy of the State Government in the future needs to be calibrated keeping these areas in consideration. The ability to generate resources and develop and implement clear fiscal strategy will lead to achieving stated goals. Building up of fiscal pressure at state level in recent years makes it imperative to improve efficiency of public spending to get best value from utilization of public resources. Government of Madhya Pradesh should utilize the opportunities available from the budgeting innovations initiated in earlier years for institutional development. 

 

JEL Classification Codes: E62, H50, H61, H70, H71, H72, H76 

Keywords:  Fiscal policy, Budgeting system, tax effort, public expenditure management, fiscal rules, MTEF