While the fiscal responsibility legislation was passed by the central government in 2003, all the states have passed corresponding legislations by 2010. The burden of financing of fiscal deficit is increasingly shouldered by domestic market borrowing of both states and the centre. While prudent fiscal management is a joint responsibility of states and the centre, because of the subordinated position of states in raising market borrowings, it is the central government that should show in a demonstrable manner the way for fiscal consolidation.

At the end of the calendar year 2011, rebound in the industrial performance and sharp moderation in the annual inflation rate have brought some respite amid the otherwise beleaguered conditions that prevailed on both domestic as well as international fronts throughout this year.

RBI in its 'Mid Quarter Monetary Policy Review' released on December 16, 2011 has kept India's GDP growth outlook unchanged at 7.6% but stated that the downside risks to GDP growth has significantly gone up. Such risks reflect combined impact of several factors like global uncertainties, cumulative impact of past monetary policy tightening and domestic policy uncertainties.

The Reserve Bank of India (RBI) apparently is retreating from its prolonged monetary tightening phase to propel growth in its Mid-Quarter Monetary Policy Review announced on 16th December. Market participants across segments felt relieved from adverse impact of rising interest rates. Still, domestic financial market activity remained cloudy since domestic growth rate has showed signs of further slowdown on the back of uncertain global factors and domestic policy uncertainties owing to inflationary pressures and consistently rising interest rates. The global economy continued its fragile behaviour combined with euro area sovereign debt problem.

Persistent euro zone turmoil and the bleak domestic macro environment crippled financial markets sentiments across sectors. The turbulent domestic growth prospects combined with inflationary and interest rate pressures gripped overall market activities. Government's efforts to perk up depreciating rupee by boosting foreign inflows and restricting speculative currency trading had marginal impact on the exchange rate front. However, portfolio investors renewed their interest in Indian markets more in the debt segment visibly evident from the net inflows data.

The objective of this study is to identify the period or periods when the domestic economy recorded a structural break in GDP growth, if any, based on both the annual GDP and quarterly data series for two different periods for which such data are available. The exercise uses the relevant econometric tools, which have an array of tests on tracing structural breaks in different economic scenarios. We have surveyed them, and also used them as a tool to the analysis of the quarterly series from 1996-97 (Q1) to 2009-10 (Q2) and the annual series of GDP for as long as 58 years from 1950-51 to 2008-09

During 2006-07 – 2009-10, Gross State Domestic Product (GSDP) growth rates of seven states exceeded the national GDP growth rates by a significant margin. These states were Bihar, Chhattisgarh, Delhi, Haryana, Maharashtra, Odisha and Uttarakhand. Barring Odisha, all these states showed a similar performance in 2010-11. The data show that the GSDP growth exceeded 10.0% in 2010-11 in Bihar, Chhattisgarh, Delhi, Maharashtra and Tamil Nadu against the GDP growth of 8.5%. In all these years Jharkhand recorded the highest growth of 20.5% in 2007-08.