NIPFP undertook this consultancy through the competitive bidding process from the Asian Development Bank. The study relates to building capacity in the state to undertake fiscal reforms. Various components of the project include enhancing the budgeting system, expenditure management and control, restructuring of the departments to enhance efficiency, reforms in the tax system, assistance to introduce value added tax (VAT), public enterprises restructuring programme and assistance in building the statistical system for measurement of state income and poverty.

This study examines appropriate structure of expenditure in terms of size and composition and formulates a medium-term expenditure policy for Uttar Pradesh. The study outlines the dimensions required for restructuring of expenditure in Uttar Pradesh. The study broadly covers the following areas: basic considerations in formulation of medium-term expenditure policy; trends and structure of expenditure in Uttar Pradesh; expenditure policy; link between expenditure and its financing; and measures to improve efficiency of government expenditure.:

The fiscal situation of the state calls for multi-dimensional reforms, augmenting tax revenues with distortion-minimising tax reforms, reducing interest payments, curbing growth of government employment, introducing a new strategy for handling pension liabilities, revamping state level public enterprises, curbing contingent liabilities and bringing debt within sustainable limits. To achieve a greater control and more effective intervention, the Fiscal Responsibility and Budget Management Act [FRBMA] provides for reducing revenue deficit to zero by 2008-09, among other targets. This would help the state take benefits of the debt consolidation and relief facility based on the recommendations of the Twelfth Finance Commission.

This study examines the existing budgetary processes and suggests reforms with a view to establishing an efficient budgetary system in Uttar Pradesh.

A coherent approach to budget reforms involves aggregate and binding fiscal targets, incentive for improving allocation and utilisation of resources, autonomy of departments and decentralisation of responsibilities and outcome budgeting.

Octroi continues to be the most important source of revenue for municipalities in octroi-levying states. Accounting for anywhere between 50-70 percent of municipal revenues, octroi has provided to municipalities a degree of financial stability and security that is substantially greater than the combined value of all other sources of revenue available to them. At the same time, octroi has been identified as a levy that creates barriers to free movement of goods and services, resulting in economy-wide losses of fuel and time. Several tax experts have called it a ‘bad tax’ and argued that octroi should have no place in an economy seeking freer trade and movement of goods and services. The Governments of Karnataka, Madhya Pradesh, and more recently Uttar Pradesh, Haryana, and Rajasthan, have abolished the levy of octroi.

The issue in Punjab as in the other states is

what should octroi be replaced with? This report prepared at the instance of the Government of Punjab attempts to respond to this question. The report has made several suggestions in respect of meeting the loss that municipalities might incur in case of octroi abolition.

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The study estimates the cost of various tax preferences in terms of the revenue forgone. Both direct and indirect taxes are covered in the study.

This study looked at the state finances of the reorganised Uttar Pradesh while drawing appropriate comparisons with the undivided state. Except for the mid-nineties there was deterioration in the fiscal imbalance indicators which led to a high and unsustainable debt for the state. In 2002-03 the debt-GDP ratio was as high as 50 percent of GSDP. The rise in debt resulted from a high level of fiscal deficit, which had reached a peak of 6.3 percent of GSDP in 1999-00. Although in subsequent years there was some improvement, this study suggests a fifteen-fold reform strategy relating to four broad areas of fiscal management covering revenue augmentation, expenditure reforms, fiscal discipline and budget management, and public sector reforms.

Using PROWESS data-base, distribution of number of companies over three year sub-periods (1989-90 to 1991-92, 1992-93 to 1994-95, etc. upto 2001-02 to 2003-04) has been obtained for manufacturing, mining, construction, electricity and services sectors. The selected companies have been classified according to their size (i.e. sales and total assets), and allocated to decile groups. The gross value added and corporate tax paid by companies are obtained.

The rapid city assessments of Ludhiana and Rajkot address the need for urban reform, potential bottlenecks, triggers for reform, and the reform agenda. Several measures such as the growth of population and land area, service delivery, and current finances including debt, suggest a need for financial as well as institutional reform in Ludhiana. The major bottlenecks to reform in Ludhiana and Rajkot are seen to be institutional, and pertain to existing arrangements for water, sewerage and land use. Major triggers that could make the reform happen in Ludhiana pertain to changes in institutional arrangements for service delivery (privatisation in service delivery and public participation, and finances less of a trigger). It is found that the reform agenda in Ludhiana should focus on getting the institutional arrangements clear for the provision of water, sewerage services and land use. Further, management of finances is crucial once octroi is formally abolished.

In Rajkot, the study finds that the statutory and institutional structures were created on the principle of separate, distinct functional and spatial jurisdictions, with little recognition that there are important interdependencies, both functional and spatial. Furthermore, there is a need to revisit the statutory provisions. The finances of Rajkot Municipal Corporation are in an unsatisfactory state, despite surplus on revenue account and its ability to finance a part of capital expenditure out of its own resources. There is some long term thinking about the significant prospect of octroi abolition, and the related problem of ineffective property tax collection. Water accounts are most vulnerable and water pricing do not reflect the scarcity value of water, i.e., the economic cost.

Overall, it is observed that Ludhiana and Rajkot, as with other Indian cities, while growing, present potential for a number of changes in their urban management.

The NIPFP assisted the Department of Women and Child Development (DWCD) to come up with a methodological framework to assess the impact of gender budgeting in nine departments. As part of this effort, the NIPFP faculty members were expert resource persons in two workshops organized by the DWCD for these nine departments and for several other departments that have set up gender budgeting cells. The objectives of these workshops were to enable the ministries prepare a profile of their public expenditure and specify gender-disaggregated beneficiaries, conduct beneficiary incidence analysis and impact assessment, in terms of their outcomes on gender.

a. This toolkit is designed to assist city governments and other participating organizations in the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) such as the state-level and city-level water supply and sewerage boards and development authorities in the formulation of City Development Plans (CDPs). The toolkit while outlying the scope of CDPs, provides an approach to identifying the key issues that need to be addressed and the options that are available with city governments to bridge the gap between where the city is at present, and where it plans to go.

Using PROWESS data-base, distribution of number of companies over three year sub-periods (1989-90 to 1991-92, 1992-93 to 1994-95, etc. upto 2001-02 to 2003-04) has been obtained for manufacturing, mining, construction, electricity and services sectors. The selected companies have been classified according to their size (i.e. sales and total assets), and allocated to decile groups. The gross value added and corporate tax paid by companies are obtained.

This study analyses the resource requirements for meeting certain targets of the health sector and analyses the gap between the required and the actual expenditure in 15 major states in India. It also highlights the extent of resources that can be mobilised at the state level to meet the resource gap and estimates the residual gap that has to be met by central transfers. Estimates indicate that the additional expenditures required for meeting the specific norms/targets in health and health related sectors are substantial. However, the capability of states to meet the additional resource requirements is limited. Significant central transfers are needed at the state-level to meet the specific targets.

Tax receipts model is primarily targeted at short-term forecasting and monitoring monthly (quarterly) tax receipts over a financial year.

In this paper we have used quarterly tax data available upto the second quarter of 2005 to forecast tax revenue (CT and IT) for the FY 2005-06. In the second paper, we use the tax receipts model to forecast CT and IT for the FY 2005-06, using quarterly tax receipts data upto the third quarter of 2005.

The objective of these two projects is to initiate informed debate on the process of sub-national budgetary policies in various states in India. This capacity building exercise in eastern region states and western region states was coordinated by involving local professionals, viz., academic community in economics and journalists dealing with budgetary policy issues at state level. A comprehensive course on state level budgetary and fiscal policy was provided under the programme.

Using essentially the same methodology that has been developed at the Institute over the years, the study first estimates the amount of subsidies – in the sense of unrecovered costs – given by the central government on various types of services provided. This is done for two years, 2002-03 (accounts data) and 2003-04 (provisional data). The subsidies are estimated for each service (by major heads in most cases) and also for three groups under Merit I, Merit II and non-Merit services. It examines three types of subsidies in some detail – on food, fertilizer, and petroleum – that account for a large part of the central subsidies, along with an assessment of a number of schemes initiated by the central government for poverty alleviation. The main focus of the detailed analyses based on available literature is on the success of these subsidies/schemes in reaching the target group of the poor and on suggesting reforms that would enhance the targeting. Using this study report as the main input, the Ministry of Finance tabled a report on the subject in the Parliament in December 2004.

The study analysed the possible revenue loss in the event of introduction of value added tax at sub-national level in India for two states, viz., Andhra Pradesh and West Bengal. The study suggested that, under the proposed implementable VAT design, the revenue loss to both the states is insignificant when the reform envisages intra-state VAT. However, when the reform includes phasing out of the Central Sales Tax, there would be revenue losses and it is necessary to find appropriate mechanism to compensate the loss.

The worsening of fiscal indicators since 1999-00 called urgently for a fiscal reform programme, aligned with a fiscal responsibility bill. A draft Fiscal Responsibility Bill was designed and fully drafted, scheduled to come into operation on April 1, 2005, and ending on March 31, 2010. This was fully coterminous with the award period of the Twelfth Finance Commission and anticipated the requirement placed by the TFC on all states. Annual path limits on the revenue deficit are specified in the form of two options. The choice between these options is vested with the state government. Simulations of expenditure compression under the two options are performed to enable the choice. The report also examines the debt swap scheme of the Government of India (GoI), in which Tripura has been a participant. Since the interest bill itself accounts for only 15 percent of revenue expenditure in Tripura, fiscal restructuring efforts have to be focused largely on non-interest expenditure, and on own revenue, both of which do fall entirely within the control of the state. The report makes a number of suggestions in respect of both these imperatives. The report also evaluates the debt swap scheme of the centre; examines avenues for enhancement of own revenue; and estimates staff redundancy by department. Finally, the report examines nineteen non-departmental PSUs, and suggests reform measures for each including, but not confined to, manpower reduction.

This paper analysed the problems of state finances in Karnataka and the constraints posed on financing human development in the state. The analysis shows that adequate allocation to human development expenditures in the 1990s has been seriously constrained by the steadily deteriorating fiscal health of the state. Although a high growth rate in the state has led to an increase in per capita expenditures in the social sector and human priority areas, there has been a decline in social allocation and human priority ratios in the state in the 1990s. The declining trend in these ratios has posed a challenge to achieving the millennium development goals and targets set out for the Tenth plan. Expenditures by local government in the state have also been segmented, inadequate, and unequally distributed. Although Karnataka is likely to meet certain human development targets in the Tenth plan in urban areas, public expenditure needs to be focused towards rural areas, in particular towards the backward districts of the state where human development indicators are far below the targets.

The study aimed at creating and promoting sustained reduction in poverty levels in India by improving the efficacy of fiscal policies in the provision of vital social and economic services, in terms of their impact on poverty reduction. In this study, poverty has been viewed in a comprehensive sense, involving not only income or nutritional thresholds but also issues of access to services like education, health, water, and security. With increasing globalization of the Indian economy, and greater reliance on market forces, fiscal intervention becomes critical for combating trends towards increasing spatial concentration of poverty. The study has examined poverty issues in India focusing on four high poverty-incidence states, viz., Uttar Pradesh, Madhya Pradesh, Uttaranchal, and Chhattisgarh, where an extensive primary survey was undertaken canvassing household level and village level questionnaires. Although the incidence of poverty in India, measured by the head count ratio, has fallen by about 30 percentage points during the last 30 years, it has become regionally more concentrated and urbanized, and in all the four states studied, more than 40 percent of the poor were found to be below 18 years of age. Gender discrimination, in terms of sex ratio and female literacy rate, is significant and in some cases rises as the incomes of the poor increase. New policy initiatives are needed to address this problem. The system of centrally sponsored schemes needs to be overhauled and involvement of Panchayati Raj Institutions in implementing these schemes should increase substantially. The study calls for focus on employment generation schemes, better targeted fiscal intervention, and emphasis on health and education as long term antidotes to poverty.

Sugana’s model has been used to estimate quarterly tax receipts and annual tax collection at the end of each quarter for the period 1994-95 to 2003-04 for which actual tax receipts data are available.

Projections of tax receipts for 2004-05 have been made by using projected values of the ratio of effective average tax rate in 2004-05 to the actual in 2003-04.

The CMIE data has been used to analyse CT accruing from a panel of four sectors (manufacturing, mining, electricity, and services) for 14 years 1989-90 to 2002-03. Since the four sectors are simultaneously affected by the general economic conditions prevailing in the country and by changes in government policies, it is assured that individual sectors do not operate in isolation and independently of each other. Accordingly Seemingly Unrelated Regressions (SUR) method for estimating the system of regressions has been used. CT has been estimated from individual sectors in terms of (i) PBT (profit before tax) both actual and estimated; and (ii) the upper bracket statutory tax rate. For manufacturing sector PBT has been estimated in terms of - infrastructure, sales, Interest payments, debt equity ratio and depreciation. For other sectors in terms of – infrastructure, -sales and bank rate of interest.

This study undertaken for the Twelfth Finance Commission (TFC), examined the fiscal performance of municipalities in different states and seeks explanations for their differential performance. Additionally, it assesses the load on state finances on account of implementation of the recommendations of the Finance Commissions of States (SFCs). It also indicates options for the TFC on how it might contribute to improving the finances and functioning of municipalities.

The study aimed at examining the recent trends in government expenditure with respect to those directly aimed at poverty alleviation, economic growth in general, and indirect poverty alleviation and expenditures on general services. The study found no radical change in the allocation to these three types of expenditure over the four-year period 2000-2004. There was, however, some evidence of general services gradually claiming a greater share mainly at the cost of the more growth-oriented public expenditures.

Disaggregation of corporate tax (CT) according to the source of accrual may be useful in improving the precision of forecasts. In this paper, CT from the manufacturing sector in terms of level of profits (actual/estimated), contribution of the manufacturing sector to GDP and the upper bracket statutory corporate tax rate are estimated. The study shows that a 1 % increase in profits would lead to 0.34% increase in CT, a 1% increase in the contribution of manufacturing to GDP would result in 0.58% increase in CT and a 1% decrease in statutory tax rate has a positive effect on CT of the order of 0.44%.

The study analyses the relationship between forestry and poverty alleviation in a village level Social Accounting Matrix (SAM) for two contrasting ecological zones in India located in the Shivalik region of the Himalayas and the arid region of Aravalli dunes. It takes into account the flow of input and output, including monetised values of the environmental goods and externalities of all major rural activities and the accrual of income, consumption, savings, trade of different income classes of the village. The accounting framework also includes human health cost related variables across income classes to take into account the quality of life The study then derives accounting, fixed and mixed multipliers to explain the relationship between forestry and poverty. The study finally suggests policy recommendations for poverty alleviation though forestry programmes.

The CMIE data has been used to analyse CT accruing from a panel of four sectors (manufacturing, mining, electricity, and services) for 14 years 1989-90 to 2002-03. Since the four sectors are simultaneously affected by the general economic conditions prevailing in the country and by changes in government policies, it is assured that individual sectors do not operate in isolation and independently of each other. Accordingly Seemingly Unrelated Regressions (SUR) method for estimating the system of regressions has been used. CT has been estimated from individual sectors in terms of (i) PBT (profit before tax) both actual and estimated; and (ii) the upper bracket statutory tax rate. For manufacturing sector PBT has been estimated in terms of - infrastructure, sales, Interest payments, debt equity ratio and depreciation. For other sectors in terms of – infrastructure, -sales and bank rate of interest.

Studies on debt sustainability in India have addressed the issue at the level of the central government alone, or aggregated across centre and states, or at the aggregate level for states. Since the constituent states of the Indian union are highly heterogeneous in terms of size, level of income, and ability to raise own resources, there is a need for a state-specific assessment of debt sustainability status. After operationalising the analytics of debt sustainability for subnational governments, states are grouped and ranked by the indicators selected. The significant increase in the outstanding indebtedness and sharp increase in the average interest rate require states to carry overall primary surpluses in order to stabilise debt as a percent of GSDP. The problem is reaching crisis proportions, with states facing increasing market reluctance to absorb their securities. Fiscal correction at state level is no longer an option, but has become an imperative. The study identifies states in need of expenditure compression and improvement in own revenue collection effort, and lists other institutional changes required, such as introduction of fiscal responsibility legislation, and participation in the Compensatory Revenue Fund and the Guarantee Redemption Fund, in order to gain fiscal credibility in financial markets. Legislated fiscal conduct has to explicitly prohibit budgetary malpractices, such as loss cover for non-departmental state PSUs through incremental contributions to share capital from the capital account of the budget. It can be nobody’s case that states are entirely responsible for the fiscal situation in which they find themselves. In a fiscal federation, the ultimate responsibility for macroeconomic control rests with government at the national level. The provision for this is presently enshrined under Article 293(3) of the constitution. The coverage of this is however partial, and does not extend to borrowing against small savings collections, or direct borrowing from the public through small savings schemes floated by the state government. It is only when the coverage of Article 293(3) comprehensively extends to all avenues of possible borrowing that enabling conditions for unsustainable debt paths will have been eliminated. These recommendations have been adopted in the Report of the Twelfth Finance Commission.

The objective of the project is to help Government of Assam design reforms in the area of resource management and governance and strengthen its capacity to implement them. Major areas of the project are fiscal reforms that include improvement in resource mobilisation, public expenditure management reforms to strengthen fiscal discipline, debt management, and budgetary reforms, and improvement in governance and public management to introduce cost-effectiveness and sustainability of reforms. Fiscal reforms are critical to accelerating growth, reducing poverty, and achieve the millennium development goals of human development and gender equity.

Accelerating the flow of investible resources into urban infrastructure and services, viz., water supply, sewerage and wastewater disposal systems, solid waste collection, treatment and management, citywide roads, and street lighting is central to India’s economic growth and poverty reduction agenda. Current investment levels in urban infrastructural services, estimated at about 2.25 to 2.50 per cent of the total development budget, are far too low in relation to the requirements, with no signals that these levels will be stepped up in the short run. Indeed, fiscal adjustment aimed at reducing budget deficit may force a cutback in public investments in infrastructural facilities. What alternatives exist for spurring investment into urban infrastracture services? Taking note of the emergence of a capital (debt) market in the country and its sensitivity to meeting the infrastructural needs of municipalities as is demonstrated by the examples of Ahmedabad, Bangalore, Hyderabad, Indore, Ludhiana, Madurai, Nagpur, Nashik, and more recently, Thane, and simultaneously examining as to what makes some municipalities to gain access to the capital market and other municipalities to continue to rely on state government grants and loans, this study entitled Financing Municipal Services: Reaching Out to Capital Markets provides a framework for municipalities to assess their creditworthiness for tapping the nascent but expanding capital market for financing urban infrastructural services.:

Setting appropriate prices is indispensable to providing adequate water to India’s growing urban population. Water in most Indian cities and towns is underpriced, with damaging long-run consequences for households who have limited and poor quality water services and for water supplying entities who are unable to invest and expand water coverage. Most water supply entities – be these the Public Health Engineering Departments (PHED), state or city- level water boards, or municipal governments, run at a loss, and cover the loss – defined as the gap between revenues from the sale of water and cost of water provision – from government subsidies and accelerated depreciation of capital. The result is a low- level equilibrium: low tariff, poor services, and constraints on access, especially of poor households. While the need for appropriate pricing of urban water has been long stressed and is widely recognized as central to broader urban sector reforms, what constitute water price reform remains an elusive and emotive issue. Moreover, the goals and objectives of water pricing are often conflicting. Using city- level experiences of water pricing, particularly in respect of the size of the consumer base, multiple instruments of charging, price discrimination between different water user groups, and price-cost linkages, this study titled as Urban Water Pricing: Setting the Stage for Reforms, provides a framework that spells out key areas of reform, objectives that may govern water pricing, and parameters of tariff rationalization.

The study aims at a diagnosis of the existing degree of gender inequality in India through gender segregation of the relevant macro-data; valuation of the existing non-NAS unpaid work of women; gender disaggregated benefit incidence analysis of public expenditure and to pre­scribe policy suggestions to build in a gender sensitive national budgeting process.

Sales tax is one of the most important state taxes in Assam, yielding over 65 percent of its own revenue with central sales tax (CST) contributing about 20 percent of total sales tax revenue. However, the overall low performance of sales tax revenue has called for its reform. This study has recommended that introduction of VAT would immensely benefit the state as VAT is not only a buoyant source of revenue, but would also be efficient. The reforms necessary to strengthen the organisation for efficient administration of VAT to be adopted prior to its introduction include adequate client services to promote voluntary compliance; identify stop filers and defaulters; and maintain low administrative and compliance costs. Management information system is yet another key to tax administration. It is suggested that recent advances in the field of information technology be grafted in the areas of VAT management in Assam. The introduction of VAT would impact state’s own tax revenue in three ways, namely, (I) extension of the tax base into stages subsequent to the first-point up to the retail stage; (ii) providing set off on tax paid on inputs and in previous stages; and (iii) changes in the structure of tax rates. The study also attempts to estimate revenue neutral rate (RNR) and the likely combined losses of revenue, if the agreed RNR of 12.5 percent is adopted. It has also been identified that in addition to having revenue implications for the state, VAT would have direct as well as indirect impacts on several macroeconomic variables.

A major shortcoming in Indian fiscal literature is the lack of attention to fiscal issues at local levels, particularly in rural areas. Much of the literature on fiscal decentralization is focused on fiscal arrangements between the centre and the states. Very little is known about public finances of Panchayat Raj institutions and fiscal relationship between state and Panchayat Raj institutions at district, block and village levels. The few studies that look at these issues are descriptive and impressionistic and are not based on reliable data.

This study is an attempt to undertake a comprehensive analysis of sub-state rural fiscal decentralization and Panchayat finances in Karnataka. It critically examines the delegation of functions in terms of various schemes and recommends reform options in consolidating the schemes. The analysis also shows virtual non-existence of fiscal autonomy at district and block levels. The analysis of own revenues, expenditures and transfers at the village level, based on the primary data collected from 636 village panchayats brings out very interesting insights. The study makes a number of reform proposals to enhance own revenues, redesign transfers and improve efficiency of expenditures.

The report sought to highlight the features special to the state of Chhattisgarh, which have an adverse impact on its finance, by way of higher cost of delivery of services and/or lower realisations in the form of tax and non-tax revenue. A principal feature of the state that contributes adversely in this manner is the forest cover. The state is expected to protect and conserve the forests in the larger interest of the country. This process involves not only a direct cost of conservation, but also an indirect cost in terms of poorer resource use, lower incomes, and hence lower tax as well as non-tax realisations. On the other hand, lower density of population implies higher costs of providing basic services to the population. A basis for correction for this disability was proposed. Another interesting feature of the report is exploring alternative approaches for disbursing allocations towards calamity relief, where a case was made for increased emphasis on drought as a calamity and a re-think proposed, on the basis for allocation of this amount among the states, with greater emphasis on drought proneness, however it be measured.

Not available.

Actual and estimated values of Corporate Tax and Income Tax have been compared and simulated forecasts obtained for 2003-04 and 2004-05.

A major shortcoming in Indian fiscal literature is the lack of attention to fiscal issues at local levels, particularly in rural areas. Much of the literature on fiscal decentralization is focused on fiscal arrangements between the centre and the states. Very little is known about public finances of Panchayat Raj institutions and fiscal relationship between state and Panchayat Raj institutions at district, block and village levels. The few studies that look at these issues are descriptive and impressionistic and are not based on reliable data. This study is an attempt to undertake a comprehensive analysis of sub-state rural fiscal decentralization and Panchayat finances in Karnataka. It critically examines the delegation of functions in terms of various schemes and recommends reform options in consolidating the schemes. The analysis also shows virtual non-existence of fiscal autonomy at district and block levels. The analysis of own revenues, expenditures and transfers at the village level, based on the primary data collected from 636 village panchayats brings out very interesting insights. The study makes a number of reform proposals to enhance own revenues, redesign transfers and improve efficiency of expenditures.

Undertaken at the instance of the Ministry of Finance (Government of India), the study has reviewed the system of classification of budget and accounts of municipal governments, and made recommendations on a new system of classification for maintaining municipal accounts. The proposed system is in conformity with similar systems existing at other governmental levels, and is able to highlight the financial position of local governments. The study was guided by three main considerations: • the existing system which came into being in the early years of the 20th century had outlined its relevance and utility; • it lacked standardisation with the result that it was not able to provide a comparable assessment of the finances of municipal governments; • there existed no system in the country for regular collection and maintenance of local finance data.

The report covers the following aspects: - investment and cost implication for upgrading of selected refineries in India for producing automotive fuels conforming to euro norms; - evaluation of health benefits for upgradation of automotive fuels; - implications of differentials in environmental standards for products across locations; - impact of upgradation on competitiveness of refineries with different vintages of technology and capacity; - pricing option for differential environment quality in the light of international experience; and - cost sharing for quality upgradation among stakeholders.

The study is planned to provide guidance on design of VAT for Orissa. Accordingly, it is focused on identifying features of the system of sales tax in Orissa impacting upon the value added tax (VAT) base, developing methodology for computing revenue neutral rates (PNRs) of VAT, and computation of PNRs of VAT with alternative feasible options of VAT design for Orissa, The alternative options are designed to explore the impact of removal of central sales tax (CST), zero rating of all inter-state transactions, and alternative VAT thresholds on the PNR of VAT.

The development of Assam is critical for the development of India's northeast. Assam alongwith other north-eastern states shares the problems of remoteness, and hilly terrain with associated high transportation costs. Assam's finances are vulnerable to the interplay between inherent weaknesses in the economy and critical exogenously driven fiscal shocks. Assam has already experimented certain fiscal reforms which had partially succeeded upto 1998-99. Subsequently, with growing expenditures, the state has landed in an unprecedented fiscal crisis. Fiscal deficit as a proportion to GSDP was as large as 7.25 percent of fiscal deficit for current expenditures. This study provides two sets of projections. The first set indicates the implication of continuation of the existing trends. Without reforms, the debt to GSDP ratio rises to about 52 percent and fiscal deficit becomes as large as 8.5 percent, highlighting the need for urgent reforms. In the second set, the study suggests an eleven fold reform package covering areas ranging from taxation, improving recoveries in non-tax revenue, salary and pension reform, reforms in subsidy with better targeting, reforming planning strategy, debt management and control, augmentation of capital expenditure relative to GSDP, restructuring public enterprises, target based control of revenue and fiscal deficits, besides budgeting reforms. The reform scenario shows that the debt to GSDP ratio could be contained to a level of 30 percent by 2006-07. Revenue deficit can be eliminated by 2005-06, and gradually the structure of expenditure can be made to move away from interest payments and pensions, creating space for more attention to important social services like health and education.

The objective of this study is to examine the interface between subsidies and environment with a view to highlighting both the positive and perverse roles that subsidies may play in affecting the environment. The study estimates environment related subsidies that emanate from government budgets. Main results of this analysis are: subsidies identified as having a bearing on the environment account for less than one percent of GDP (center and states considered together) – of these subsidies having a clear positive impact on the environment are only a small fraction; and environment-related subsidies emanate relatively more from the state budgets. Conventional economic analysis obscures the degradation of the natural resource base that supports the economy, including the agriculture of a country- changes in productivity and availability of natural resources simply are not taken in to account. Economic research documenting the relationship between farm practices and environmental degradation is scanty. This report develops an analytical framework, which allows identifying the impact of input use on environmental quality and crop yield. The model incorporates the environmental variables directly into the farm production function. From the framework, environmentally optimal levels of input use can be identified, which also serve to derive the input price changes needed in order to move farmers towards the social optimum.

The study suggests measures for the augmentation of the Consolidated Fund of the State to supplement the resources of municipalities. After assessing the needs of municipalities, the study estimated the revenue resources that can be tapped by the municipalities under the tax provisions delegated to them. Revenue gap, or the difference between the need and availability of own resources, would indicate the requirement resources to be transferred. The study undertaken for the Eleventh Finance Commission has assessed the revenue gap of municipalities and projected their financial requirement for the time period 2000-01 to 2004-05.

This report outlines a strategy that will set the state on a path of eco-friendly, sustainable development, aimed at expanding income and employ­ment opportunities. It analyses the reasons for the slow pace of development in the past, despite substantial financial support from the central government and a low population den­sity. After spelling out goals for the economy, it elaborates the underlying fiscal policy frame­work and sectoral strategy necessary for realizing these goals. A vastly expanded role for the private sector and community is envisaged, and the introduction of technology and modern scientific methods to help the state overcome its natural handicaps of inaccessibility is emphasized.

Pollution from industries constitutes a considerable part of the total pollution in India. But reliable information on the nature and level of emissions by plants/factories is not available. This makes it difficult for regulators to come up with cost effective strategies - in terms of design of environmental regulations as well as their enforcement - for industrial pollution control. Therefore, the need is to adopt alternative ways for estimation of environmental parameters as complements to direct measures of such parameters at the firm level. This report uses one such alternative of estimating these parameters from information on pollution intensities and abatement costs from secondary sources. The study suggests introduction of a water pollution charge, and recommends that the regulator should prioritise monitoring effort and allocate monitoring resources more efficiently by targeting industries characterised by relatively high effluent discharges and low costs of pollution abatement.

As trends in air pollution levels in most Indian cities reflect deterioration in air quality, there is a growing emphasis on finding and implementing methods and instruments that are more efficient in controlling air pollution than those which have already been tested and tried. The focus is on more innovative approaches, such as economic instruments based on 'pollution pays principle’ and command and control measures. This study assesses the feasibility of economic measures to prevent and control vehicular air pollution in Delhi. It estimates air pollution emissions of automobiles and suggests cost-effective measures to reduce vehicular emissions. The persistent and rigorous implementation of pollution control laws is also emphasised.

The project recommended a rational design for CST taking into consideration the issues of a com­mon market, efficiency, and inter-jurisdictional equity. The study included issues related to declared goods, consignment tax, and taxation of services.

The primary objective of the study is to investigate pricing policies of Indian hotels and to examine their implications on the industry on one hand, and on tourism and the Indian economy, on the other. At present a number of hotels quote two official prices for any given category of room: a rupee price for the Indian client and a dollar price for the foreign client. The study aims at examining the optimality of the tariff structure and the need, if any, for a changeover from the dual tariff structure to single tariff in regard to the future full convertibility of the rupee. In addition, it also tries to analyze the current pattern of the central and state taxation policies, especially those pertaining to the expenditure tax and luxury taxes impacting the hotel industry, and to suggest a rational tax structure.

The mineral sector, an important segment of the Indian economy, is completely dominated by the public sector. This study enlisted various taxes and levies by all levels of government in India and analyzed the impact of the overall tax regime on the mineral sector with a view to suggesting possible reforms. For designing a tax regime, the specific issues that need to be resolved are: (i) how much to tax; (ii) how to coordinate the two roles of the government- one as the owner of the mineral resources, and the other as an agent responsible for achieving economic and social development; (iii) whether a separate tax regime is needed for the mineral sector; and (iv) how to combine different levies in a multi-levy system. The profile of the major taxes and non-taxes in India, levied by all the three tiers of government - central, state, and local reveals that they are: corporate income tax, union excise duties and custom duties by the central government, prospecting and mining lease fee, royalty, dead rent, surface rent, stamp duty and registration fee, sales taxes, and environmental protection fees, and charges by state governments and tax on entry of goods, besides other general taxes. An assessment of the burden of the various levies on the prices of selected minerals and variations across states has been attempted by adopting two measures of tax impact on mineral prices, namely, the domestic tax burden and the effective rate of protection (ERP). From a review of mineral levies in India, the tax system does not appear to be designed to take into account the risk that characterizes mineral exploration and extraction. In the medium-term, the following changes are recommended - rate rationalization of the income and corporate tax structure; conver­sion of the specific royalty rate structure into ad valorem structure; combining state sales tax with royalty, abolition of the octroi and other local levies that hinder the transport of minerals; and rationalization and simplification of the various local levies.