Fiscal decentralization in China and India: A comparative perspective

The paper analyses trends in fiscal decentralization in the two largest countries of the world — China and India. Both countries are in transition from a planned to a market system. The paper identifies the emerging challenges in achieving fiscal decentralization in the two countries. The challenges arise firstly from the transition to the market economy and secondly from the replacement of the old command and control systems with institutions developed to administer market-based policies and instruments. The paper argues that the approach to meet the emerging challenges has to be holistic and should deal with the sub-national budgeting system underpinning central fiscal control and not just the various components of the sub-national systems. The overall approach should ideally encompass all levels of government.