ABSTRACT
Allocation of expenditure and revenue responsibilities to different levels of governments is the most fundamental issue in fiscal federalism. The processes of fiscal decentralization have over time incentivized the states to improve their own-source revenue mobilization by diversifying their revenue structure and introducing fiscal reforms. With the objective of examining the effect of decentralization in India and China, keeping in view the expenditure-led decentralization process, this chapter takes three steps. First, it provides a theoretical and empirical background. Second, it analyses variations in the pattern of spending across the sub-national governments in India and China, at the state and provincial level, respectively. Third, it traces the progress in the human development indicators in India and China. Finally, it concludes with the comparative finding that shows mixed result in the case of India and China on the effect of decentralization on development indicators. The present analysis reaches the conclusion that in comparative terms, China performed better than India. The variability in spending across the sub-national institutions decreased in China than in India. As decentralization introduces a new relationship of accountability between national and sub-national governments, policymakers need to strengthen the link between the tiers to make the lower level of government more effective in reaching the beneficiaries.
