tribfikAL FISCAL MODEL 4^
apart tor the servicing of their debt to the Centre. Hence, their increased dependence on non-statutory transfers. ^
The picture is still not quite complete, because the focus so far has been on financial transfers to the states through the budget. But the budget has not been the only channel of financial transfers to the states. There exists in the country a whole panoply of financial and semi-financial institutions which too have acted as a major channel. The principal institutions are (1) the commercial banks, the vast bulk of whose operations falls within the nationalised sector, (2) the public sector's Life Insurance Corporation, (3) term lending financial institutions which again are either altogether in the public sector or in which the public sector has a dominant voice and (4) semi-financial institutions like the public sector rural electrification corporation which have sizeable funds to distribute (here, the public rector is to be taken as the sector in the control of the Central Government.) According to one calculation, funds passing the States through the institutional channel have accounted for over two-fifths of the total finance flowing to the states including that through budgetary transfer.5
It should also be added that transfers through these undertakings are altogether in the form of loans which are largely, if not altogether, reflected in the figure given earlier of the state's outstanding debt.
To sum up, in its actual operation the Indian fiscal model has made the states more dependent on the Centre for non-statutory transfers, budgetary and institutional. At the same time it has increased their indebtedness to the Centre, with all its attendant problems in regard to servicing.
1. See I.S. Gulati and K.K. George, "Eighth Finance Commission^ Award :
Lessons we can now draw". Economic and Political Weekly, July 25, 1987.
2. See K.K. George and I.S. Gulati, "Central Inroads into State Subjects," Economic and Political Weekly, April 6,1985.
3. Sec I.S. Gulati and K.K. George, "Eighth Finance Commfesion's Award", op. ci'r.
4. See Reserve Bank of India, Currency and Finance Report, 1986-87.
5. See I S. Gulati and K.K. George, "Inter-State Re-distribution through Institutional Finance", Eonomic and Political Weekly, Special Number, August 1978.