India, Jan. 11 -- The Union budget is the most important economic policy event by a distance on the annual calendar. Without prejudice to its importance for the economy at large, it is worth underlining that the states, put together, spend more than the Centre in India. This makes the fiscal priorities of the states a very important driver of overall economic fortunes.

It is in this context that the role of capital spending by the states cannot be overemphasised. Capital spending is necessary to plug supply side gaps in India's infrastructural setup, which if done well, can unlock growth and give a boost to future incomes apart from driving present day demand. India's fiscal federalism has made a gradual pivot away from the autonomy enjo...