An autonomous research institute under the Ministry of Finance

 

Working papers

What do we gain from Seasonal Adjustment of the Indian Index of Industrial Production (IIP)?

  • Oct, 2020
  • Authors Radhika Pandey, Amey Sapre and Pramod Sinha
  • Details NIPFP Working Paper No. 322
  • Abstract
    In this paper we conduct a seasonal adjustment (SA) of the 2011-12 base series of Index of Industrial Production (IIP). We use the x-13 ARIMA-SEATS iterative process and follow an indirect approach of first identifying seasonality at the product level and then recompile the manufacturing index with seasonally adjusted series. The SA process shows identifiable seasonality in 206/405 (50%) items spread within broad NIC groups of food, beverages, textiles, leather & apparels. Seasonally adjusted levels also provide a smooth and low fluctuation series that can be used for extrapolation in the advance and provisional estimate stage of GDP estimates. However, the SA process reveals several data quality issues of inexplicable outliers, growth rates and changes in pattern of individual items. While seasonal adjustment has advantages, the process pre-supposes pristine data quality and given the trends shown by item level data, both the SA and actual IIP are inadequate in explaining the growth performance of the manufacturing sector.
     
    Keywords: Seasonal Adjustment, X-13 ARIMA-SEATS, Index of Industrial Production, Fluctuations, India
     
    JEL Classification: C43, C50, P44
     
    Acknowledgments
     
    We are thankful to Pronab Sen and GC Manna for helpful comments and suggestions.
     
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Building Infrastructure to Promote Inclusive Growth

  • Oct, 2020
  • Authors Rudrani Bhattacharya, Abhijit Sen Gupta and Satadru Sikdar
  • Details NIPFP Working Paper No. 321
  • Abstract
    Globally infrastructure has been found to play a significant role in promoting inclusiveness and growth through various channels. These include reducing the cost and improving the quality of intermediate inputs, enlarging the market size and allowing greater competition, and improving access to public services and economic opportunities. In this paper, we empirically investigate the role played by infrastructure development in improving living standards across major states in India. We explore the role of infrastructure development in four sectors, viz. electricity, roads, education and health, in enhancing income growth and facilitating poverty reduction. Instead of focusing on the commonly used infrastructure expenditure as a measure of infrastructure development, we construct infrastructure indexes for each sector using an array of physical indicators for that sector. This helps us overcome the inaccuracies that can arise due to inefficiency, leakage, corruption and weak government procurement policies. We find that infrastructure development across roads, electricity and education sectors, significantly bolster economic growth. On the other hand, infrastructure development across electricity, health and education sectors substantially assist in poverty reduction, even after accounting for the impact of major social welfare schemes. We conclude by highlighting some broad measures to enhance infrastructure investment.
     
    JEL Classification: C3, I15, I25, O11.
    Keywords: Infrastructure, Income growth, Poverty, Panel VAR, India.
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Centre-State Spending on Elementary Education: Is it Complementary or Substitutionary?

  • Sep, 2020
  • Authors Sukanya Bose, Manasi Bera and Priyanta Ghosh
  • Details NIPFP Working Paper No. 320
  • Abstract

    The objective of this paper is to empirically address the question of Centre-State relation in financing elementary education.  The idea of financial concurrency in financing education and the experience of various centrally sponsored schemes provides the historical context for the analysis. The empirical question focuses on the impact of SSA’s central grants on States’ spending behaviour. Is the relationship complementary or substitutionary? The paper also explores the impact of the 13th Finance Commission’s grants for elementary education.  The results indicate that the central grants for SSA (and the 13th FC grants) has a complementary impact on State’s spending, though the incremental effect varies across states. The results are particularly pertinent for the 16 focus States, which have large additional financial requirements. It is important to restore financial concurrency between the Centre and the States, for universalization of elementary education of an equitable quality, a task that is far from over. We also argue for a specific purpose grant by the 15th Finance Commission based on equalisation principle.

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Impact of Covid-19 on the Indian Economy: An Analysis of Fiscal Scenarios

  • Sep, 2020
  • Authors Ila Patnaik and Rajeswari Sengupta
  • Details NIPFP Working Paper No. 319
  • Abstract
    Amidst the economic slowdown triggered by the outbreak of the Covid-19 pandemic in India there have been many demands for the government to announce a large fiscal stimulus to support the economy. Economic growth and tax revenues remain uncertain in 2020-21 making it challenging for the government to finance any addition to the fiscal deficit. In this paper we work out alternative scenarios of fiscal deficit for 2020-21. We find that in our baseline scenario, assuming a 5% contraction in real GDP and a 14.4% contraction in net tax revenue, fiscal deficit of the central government will be 6.2% of GDP. 
     
    JEL classification: E6, H2, H5, H6 
     
    Keywords: Fiscal deficit, Covid-19, Fiscal projections, Government borrowing, Tax revenue.
     
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Reverse Migration during Lockdown: A Snapshot of Public Policies

  • Sep, 2020
  • Authors Satadru Sikdar and Preksha Mishra
  • Details NIPFP Working Paper No. 318
  • Abstract

    The imposition of a nation-wide lockdown in India in response to the novel COVID-19 pandemic has appropriately been lauded as an effective pre-emptive strategy. However, a distressing pitfall has been the massive ‘reverse migration’ of migrant workers from the destination centres in an attempt to escape starvation brought on by sudden collapse of employment and lack of effective social protection mechanisms. The pandemic has brought to the forefront of policy discussions not only the immediate issues of this particularly vulnerable group but also the broader issues pertaining to their identification and informal employment conditions. Within the migrant workers, the inter-state migrant workers have been especially affected due to non-portability of entitlements. This paper aims to analyse the migration trends on the basis of available data from the Census of India 2001 and 2011 and to critically examine the current Public policies (Union and state governments) to address the new emerging challenges – provision of immediate relief to migrants, employment generation in source centres to sustain the in-migration and incentivising the ‘city makers’ to return to the destination centres. The paper, further, attempts to assess the issues of sufficiency and feasibility of the public policies in this regard.

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Role of National Health Mission in Health Spending of States: Achievements and Issues

  • Aug, 2020
  • Authors Mita Choudhury and Ranjan Kumar Mohanty
  • Details NIPFP Working Paper No. 317
  • Abstract

    The current phase of the National Health Mission is scheduled to end by 2021, and the next phase of the scheme is around the corner. This paper undertakes an analysis of the contributions of the scheme in health spending of States, and highlights specific factors affecting them. The analysis suggests that the scheme contributed to reduction of inequality in health spending across states and added funds to the lower tiers of the health pyramid. The contribution of the scheme was however, limited in strengthening health systems in relatively poor performing ‘high-focus’ states. Lack of complementary inputs in states, capacity issues and weak public financial management affected the performance of the scheme. The paper throws light on some of the issues that need attention in the next phase of the scheme. 

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Moving to Inflation Targeting

  • Aug, 2020
  • Authors Ila Patnaik and Radhika Pandey
  • Details NIPFP Working Paper No. 316
  • Abstract
    India adopted a flexible inflation targeting framework as a formal legal mandate of the RBI in March 2016. The preamble to the RBI Act, as well as relevant sections in the Act were amended to enable this change. The frame- work entailed many details such as on the rate of inflation to be targeted, the band, the measure, the composition of the Monetary Policy Committee and the objective. One of these sections require that the rate of inflation to be targeted needs to be reviewed every five years. In March 2021, the central government along with the RBI is required to review the target. This paper presents the logic and rationale of the various elements of India’s inflation targeting framework.
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Equity in Intra-State Distribution of Public Spending on Health: The Case of Bihar and Tamil Nadu

  • Jul, 2020
  • Authors Mita Choudhury and Jay Dev Dubey
  • Details NIPFP Working Paper No. 315
  • Abstract
    Equitable distribution of public spending has been argued to be an effective tool for enhancing access to health care and moving towards Universal Health Coverage. In India, much of the existing evidence on equity in public spending has been confined to state-level aggregates, and intra-state distribution of public spending has received limited attention. This paper focuses on the distribution of public spending on health within two Indian States (Bihar and Tamil Nadu) to provide insights on differential access to health care within each state. The analysis suggests that public spending on health is pro-rich in Bihar, and plays a relatively weak redistributive role. In contrast, the distribution of public spending on health in Tamil Nadu is strikingly pro-poor, particularly at lower levels of care. In both horizontal and vertical dimensions (across districts and levels of health care), inequity in public spending is significantly higher in Bihar than in Tamil Nadu. 
     
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Problems with the e-Courts data

  • Jul, 2020
  • Authors Devendra Damle and Tushar Anand
  • Details NIPFP Working Paper No. 314
  • Abstract
    The creation of the e-Courts platform for disseminating data from the subordinate judiciary was an important step in making Indian courts more transparent. This platform has also prompted an interest in data-driven research on courts. While the e-Courts platform is a major reform in itself, there are numerous obstacles in successfully using this data for research. Previous work has pointed out that the data has standardisation issues, particularly in case-type nomenclature. It has also been shown that other fields, such as statute names and section numbers, are missing in some cases. In this paper, we quantify these error rates, which have so far only been known to exist anecdotally. We also identify new issues with the data, notably issues with wrong data being entered in certain fields. We report and quantify problems with mismatches between case-types and statute names, missing and malformed data in the statute name, section number, and date-time fields. We also show variations in error rates across states. The Indian Supreme Court eCommittee has taken cognisance of and initiated interventions to address some of these issues. However, the fundamental cause of bad quality data, viz. the lack of systematic data quality reviews and capacity building for the same does not seem to be part of the committee’s plans. Until these quality issues are addressed, the use of this data for research will be limited.
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Did public investment crowd out private investment in India?

  • Jul, 2020
  • Authors Honey Karun, Hrishikesh Vinod, and Lekha S. Chakraborty
  • Details NIPFP Working Paper No. 312
  • Abstract
    Our paper uses the ME (Maximum Entropy) bootstrap method to overcome the econometric constraints of using a short time series after the publication of a new macroeconomic series in India. We use a short time series (quarterly data) of stationary and nonstationary variables between 2011-2016 to confirm the positive role of public infrastructure investment. The significant result has policy implications in terms of the current debate, whether public investment ‘crowds-in’ rather than ‘crowds-out’ private corporate investment in India. 
    JEL Classification: E62, C32, H62
     
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Natural Resources Revenue Buoyancy in India: Empirical Evidence From State-specific Mining Regime

  • Jul, 2020
  • Authors Lekha S. Chakraborty, Emmanuel Thomas, and Piyush Gandhi
  • Details NIPFP Working Paper No. 313
  • Abstract
    The dynamics of natural resources revenue – the payment due to the sovereign owner (government) in exchange for the right to extract the mineral substance – is complex, how it is fixed and paid. It is controversial and significant, as it is a revenue that is unique to the resources sector and also that has been fixed and paid in multiple extractive tax regimes, sometimes on the measures of profitability, but more often based on ad valorem (value based) or the unit of the mineral extracted. We try to analyse how dynamic revenue from natural resources across the States in India , within a comparative framework with other (direct and indirect) taxes. Using the ARDL methodology, we have tried to estimate the revenue buoyancy within States and between the States in a panel, and analysed the short run and long run coefficients and their speed of adjustment. Using HP filter, we tried to estimate the potential GDP, and also analysed the cyclicality of revenue buoyancy using output gap variable across states. Our findings revealed that revenue from natural resources is a buoyant source of revenue, though there is distinct State-specific differentials. The policy implication of our study for the natural resources sector is the rate rationalisation as higher rates revised upward every three years through Royalty Study Group by Government of India can affect the revenue augmentation if Laffer Curve starts operating and in turn it affects the firm level competitiveness. The decision of shifting the mining regime from tonnage regime to ad-valorem regime for non-atomic non-ferrous is welcome, as it is market-linked. 
     
    Keywords: Natural resources taxation, Buoyancy, ARDL, Mining regime
     
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Biodiversity Conservation in India: Mapping Key Sources and Quantum of Funds

  • Jul, 2020
  • Authors Rita Pandey, Manish Gupta, Paavani Sachdeva, Abhishek Singh and Shivali Sugand
  • Details NIPFP Working Paper No. 311
  • Abstract
    India being a signatory to CBD is mandated to achieve biodiversity targets according to a time line, which requires a credible action plan, funds, and a smart implementation strategy. While India has a National Biodiversity Action Plan, it lacks a Biodiversity Finance Policy/Plan ─ key to identifying, current funds flow, periodic and continuous additional finance needs as well as resource mobilization strategies. Biodiversity finance in India, is highly fragmented, lacks a clear policy and a road map. Multiple institutions are involved in directing finance often with overlapping functions and no systematic tracking. While a couple of studies have attempted to map the sources and quantum of funds towards biodiversity conservation, there is no comprehensive estimate of total budgetary funding in India for this purpose. This paper not only fills this gap but also estimates the flow of funds from externally aided projects and from corporate sector through CSR and other compliance mandates. The paper uses a modified ‘Rio-marker’ methodology and ‘Budgetary data on Actual Expenditure’ on biodiversity in the analysis thus contributes to both theoretical and empirical literature on the subject. The analysis shows that the majority of BD management is through government Budget support, supplemented by externally aided projects, corporate sector, and Civil Society. The paper shows that a template for tracking and tagging biodiversity expenditure is necessary in institutionalizing this process and thus moving towards a credible biodiversity finance plan.
     
    Keywords: Biodiversity financing, government expenditure, sub-national governments, Maharashtra, India
    JEL Classification: Q5
     
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Goods and Services Tax Efficiency across Indian States: Panel Stochastic Frontier Analysis

  • Jul, 2020
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 310
  • Abstract
    In public finance, estimation of tax potential of a government – either federal or provincial – has immense importance to understand future streams of tax revenue. Tax potential depends on tax capacity and tax effort (TE) and therefore joint estimation of both the functions is desirable. There are several frameworks to estimate tax capacity and tax efficiency (tax effort); in the present paper time variant truncated panel Stochastic Frontier Approach (SFA) is adopted to estimate the functions jointly for the period 2012-13 to 2019-20. The findings of the study could be useful for policy and especially for the sitting Fifteen Finance Commission. The results of the study show that GST capacity of states depends on size and structural composition of the economy. Introduction of GST has reduced states’ GST capacity and the impact is restricted to scale only. The study has used data from GST Network (GSTN) database for the post-GST period and given all other factors at their levels, GSTN data shows lower GST capacity for high income states and higher capacity for low income states. The relationship between per capita income (PCI) of states and tax efficiency is non-linear and as PCI rises TE falls and thereafter it rises. Minor states (special category states and UTs with legislative assembly) have lower tax efficiency. Delhi and Goa have the highest GST gap and on average major states could increase their GST collection by 0.52 percent of GSVA and minor states by 1.15 percent if they increase their tax efforts.                  
     
    Key Words: Tax capacity, Tax efficiency, Goods and Services Tax (GST), Value Added Tax (VAT), Stochastic Frontier Approach, Panel Data Analysis, States of India.  
    JEL Codes: H21, H71, H77
     
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Responding to the new coronavirus: An Indian policy perspective (Submitted on March 11, 2020)


Addressing Air Quality Spurts due to Crop Stubble Burning during COVID-19 Pandemic: A case of Punjab

  • Jun, 2020
  • Authors Rita Pandey, Shailly Kedia, and Anuja Malhotra
  • Details NIPFP Working Paper No. 308
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Impact of Negative Interest Rate Policy on Emerging Asian markets: An Empirical Investigation

  • Jun, 2020
  • Authors Abhishek Anand and Lekha Chakraborty
  • Details NIPFP Working Paper No. 307
  • Abstract
    In last few years, several central banks have implemented negative interest rate policies (NIRP) to boost domestic economy. However, such policies may have some unintended consequences for the emerging Asian markets (EAMs). The objective of this paper is to provide an assessment of the domestic and global implications of negative interest rate policy. We also present how the implications differ from that of quantitative easing (QE). The analysis shows that the impact NIRP is heterogeneous; with differential impacts for big Asian economies (India and Indonesia)and small trade dependent economies (STDE) (Hong Kong, Philippines, South Korea, Singapore and Thailand). Nominal GDP and exports are adversely impacted in EMs in response to NIRP, especially in India and Indonesia. The inflation goes significantly high in EMs in response to plausible negative interest rates but the impact is much more severe for India and Indonesia than in STDEs. The local currencies also depreciate in all EAMs in response to negative interest rates. QE, on the other hand, has no significant impact on inflation but nominal GDP growth declines in EAMs. The currency appreciates and exports decline. The impact is much more severe in big emerging economies like India and Indonesia.
     
    Key words: Negative interest rate policy, Quantitative easing, emerging economies
    JEL Classification codes: E52, E58.
     
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Exit at the Bottom of the Pyramid: Empirical Explorations in the Context of Elementary Schooling in Delhi

  • May, 2020
  • Authors Sukanya Bose, Priyanta Ghosh and Arvind Sardana
  • Details NIPFP Working Paper No. 306
  • Abstract
    The framework of exit and voice, a la Hirschman, is applied to understand the social phenomenon of exit at the bottom of the pyramid. As the dominant groups vote with their feet, the low fee private school (LFPS) is perceived to be offering parents from disadvantaged groups “school choice”. We attempt to establish the size of the LFPS sector, information about which is central to educational planning, regulation and implementation, but invisible in the official database. A methodology based on macro-survey data is formulated and then applied to Delhi that has a substantial underbelly of LFPSs. We find that the estimated size of the LFPS sector accounts for nearly half the share of the overall children attending private schools at the elementary level.
    Policy recommendation suggests concrete steps toward expansion of public schools through public investment estimated at 0.3-0.4% of GSDP of Delhi, and upgradation of the existing facilities towards well functional benchmarks as per the RTE design so as to provide a credible alternative to the LFPS sector.
     
    Keywords: Low Fee Private School, Affordability, Exit, Voice, RTE, Elementary Education, Education Policy.
    JEL Classification Codes: I21, I24, I28, H75
     
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Gender discrimination in devolution of property under Hindu Succession Act, 1956

  • May, 2020
  • Authors Devendra Damle, Siddharth Srivastava, Tushar Anand, Viraj Joshi and Vishal Trehan
  • Details NIPFP Working Paper No. 305
  • Abstract
    In India, statutes governing individuals on matters of personal law (marriage, divorce, inheritance, adoption) differ as per the religion of the individual. In this framework, matters of inheritance of property amongst Hindus, Buddhists, Jains and Sikhs are governed by the Hindu Succession Act, 1956 (HSA). This legislation applies to the transmission of all assets owned by Hindus.
     
    The provisions of the HSA discriminate against Hindu women by prescribing different rules for devolution of property held by men and women. These provisions have the effect of excessively, and unfairly prioritising the husband’s family in the scheme of devolution as compared to the woman’s own family, even when the property belongs to the woman. The legislation is a product of an era when it was inconceivable for Indian women to own and acquire property. However, these biases continue to be perpetrated upon Hindu women in India today.
     
    This discrimination is ultra vires of Articles 14 and 15 of the Constitution of India, it violates India’s commitments under the United Nations Convention on the Elimination of All Forms of Discrimination Against Women, and leads to several undesirable consequences especially in cases where the property in question is acquired by the woman through her own skill or effort. Indian legislation such the Goa Succession, Special Notaries and Inventory Proceeding Act, 2012 (GSSNIP) and Indian Succession Act, 1925 (ISA), and succession laws of developed countries are far more gender-equitable, and can serve as an inspiration for eliminating the gender-discrimination in the HSA.
     
    The efforts, so far, to reform the HSA on this particular matter have been myopic at best. We provide a principles-based approach to comprehensively amend the HSA, to remove the gender discrimination in devolution of property. We propose a draft amendment to the HSA to effect this reform
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COVID-19: Global Diagnosis and Future Policy Perspective

  • May, 2020
  • Authors Divy Rangan and Lekha Chakraborty
  • Details NIPFP Working Paper No. 304
  • Abstract
    We analysed the macroeconomic policy responses to COVID-19 pandemic and the impact of the pandemic on economic growth, and the level of consumption. The COVID-19 crisis is a dual crisis - public health crisis and a macroeconomic crisis. The policy responses to this crisis have been a ‘life versus livelihood’ sequencing and the findings are such that global cooperation, and domestic macroeconomic policies complementing with exit strategy to solve the economic disruptions in supply chains can be helpful.
     
    Keywords: COVID-19, Monetary Policy, Fiscal Policy, Macroeconomic Responses.
    JEL Classification Codes: E5, E6, I150
     
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Emerging Fiscal Priorities and Resource Concerns: A Perspective on Fiscal Management from Madhya Pradesh

  • Apr, 2020
  • Authors Pratap Ranjan Jena and Abhishek Singh
  • Details NIPFP Working Paper No. 303
  • Abstract
    State finances of Madhya Pradesh mirrors the fiscal situation of states in India and emerging challenges that include lack of buoyancy of internal revenue, prolonged slow economic growth and uncertainties regarding central transfers, and impact of recommendations of the 15th Finance Commission. While the State adhered to fiscal rules, the fiscal space available has been shrinking and coming years will test the ability of the Government to adhere to numerical fiscal targets and to avoid fiscal stress. The State’s achievement with regard to human development, particularly education and health indicators have not been impressive. The fiscal policy of the State Government in the future needs to be calibrated keeping these areas in consideration. The ability to generate resources and develop and implement clear fiscal strategy will lead to achieving stated goals. Building up of fiscal pressure at state level in recent years makes it imperative to improve efficiency of public spending to get best value from utilization of public resources. Government of Madhya Pradesh should utilize the opportunities available from the budgeting innovations initiated in earlier years for institutional development. 
     
    JEL Classification Codes: E62, H50, H61, H70, H71, H72, H76 
    Keywords:  Fiscal policy, Budgeting system, tax effort, public expenditure management, fiscal rules, MTEF
     
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COVID-19 and Macroeconomic Uncertainty: Fiscal and Monetary Policy Response

  • Apr, 2020
  • Authors Lekha Chakraborty and Emmanuel Thomas
  • Details NIPFP Working Paper No. 302
  • Abstract

    The macroeconomic uncertainty created by COVID-19 is hard to measure. The situation demands simultaneous policy intervention in terms of public health infrastructure and livelihood. Along with the global community, India too has announced its initial dose of fiscal and monetary policy responses. However, more fiscal–monetary policy coordination is required to scale up the policy response to the emerging crisis. Innovative sources of financing the deficit, including money financing of fiscal programmes, a variant of “helicopter money,” need to be explored.

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Performance Assessment of Indian GST: State-level Analysis of Compliance Gap and Revenue Growth

  • Mar, 2020
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 301
  • Abstract
    Revenue from Goods and Services Tax (GST) is not meeting budgetary targets for last two financial years and therefore it is important to understand the reasons behind shortfall in GST collection. Any shortfall in GST collection will not only impact fiscal management of the union government but also it will spill over to state finances in terms of lower tax devolution. Structural changes made in the GST, in terms of increasing GST threshold and reducing tax rates for a large number of goods and services may have helped to moderate the impact of GST on Indian economy, but the revenue impact of the policy decisions cannot be negligible. In addition, revenue impacts of changes made in administrative provisions and procedures in GST require assessment for future policy directions. Moreover, tax compliance under GST is not improving over time and therefore it is further delaying stabilization of GST. There are many challenges that tax administrations (both union and state tax authorities) are facing today in terms of complexities of GST Rules and Regulations and getting access to information for effective tax administration. Given the revenue importance of GST in overall public finance management in India, in-depth understanding the reasons for revenue shortfall could help the government devise policies to overcome the challenges. The challenges before Indian GST can be classified into design and structural aspects of GST and tax administration and compliance related. In this paper we assess compliance and revenue performance of states in GST and estimate GST compliance gap. 
     
    Key Words: Goods and Services Tax (GST), GST Compliance, Revenue Assessment of GST, Compliance Gap Analysis, GST Evasion, Indian States. 
     
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How Effective is Public Health Care Expenditure in Improving Health Outcome? An Empirical Evidence from the Indian States

  • Mar, 2020
  • Authors Ranjan Kumar Mohanty and Deepak Kumar Behera
  • Details NIPFP Working Paper No. 300
  • Abstract
    The literature on public health spending and health outcomes remain an important contribution in implementing public health policies in developing countries. The purpose of this study is to investigate the effects of public health expenditure on various proximate and ultimate health outcomes during 2005-2016 using panel fixed-effects models across 28 Indian States. The empirical results show that per capita public health care expenditure has an adverse effect on the infant and child mortality rate, malaria cases, and a favourable effect on life expectancy, immunization coverage across States, while this impact is relatively weak in the case of High-Focus States. The study is very relevant in the context of achieving the targets of Sustainable Development Goals and moving towards the universal health coverage at the State level in India. It suggests for enhancement of public health spending, and improvement of health infrastructure among the Indian States.
     
    Keywords: Public Health Expenditure, Life Expectancy, Infant Mortality, Child Mortality, Fixed Effects Model, Indian States
     
    JEL Classification Codes: H51, I10, I18, C23
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Fiscal Consolidation Ex-post the Escape Clause: A Call for “Excessive Deficit Procedure”

  • Mar, 2020
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No.299
  • Abstract

    Launching an “excessive deficit procedure” in India is inevitable for growth revival. This is crucial especially when there is considerable ambiguity about why the “escape clause” was invoked in the Union Budget 2020 - whether to meet the shortfall in tax revenue emanating from the unanticipated fiscal outcomes of structural reforms or to boost the capital formation in the economy.

     

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The New Monetary Policy Framework – What it Means

  • Feb, 2020
  • Authors C. Rangarajan
  • Details NIPFP Working Paper No. 297
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Climate Change-responsive Public Expenditure in India: An Empirical Analysis

  • Feb, 2020
  • Authors Amandeep Kaur and Lekha Chakraborty
  • Details NIPFP Working Paper No. 298
  • Abstract
    The paper examines the links between national plan on climate change and the fiscal stance across sectors in the context of Union government in India, against the analytical backdrop of environmental federalism. We have mapped the National Action Plan on Climate Change in India to the Demand for Grants across all the ministries and departments to arrive at an estimate for the public expenditure on adaptation, mitigation and regulatory spending relate to climate change. The mapping of National Action Plan on Climate Change to the budgetary allocations across sectors undertaken in this paper is illustrative and openended. Given the data constraints, we identified that specifically targeted expenditure on climate change related programmes is around 5-6 per cent of total expenditure in the national budgets. However, there is significant deviation between the budget estimates and the actual spending. The fiscal slippage is analyzed to understand the Climate Change budget credibility. The sustainability of the link between fiscal stance and climate change depends on integrating budget codes in the classification of budgetary transactions, through a clear road map by the Ministry of Finance. As such, the financing of climate change is highly fragmented in India at sectoral levels and calls for a macroeconomic policy framework.
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Revisiting the Role of Fiscal Policy in Determining Interest Rates in India

  • Feb, 2020
  • Authors Ranjan Kumar Mohanty and N. R. Bhanumurthy
  • Details NIPFP Working Paper No. 296
  • Abstract
    The role of fiscal policy in affecting interest rates has been examined extensively in emerging market economies such as India. While the findings of the existing studies diverge, some suggesting crowding out while a few suggesting otherwise, the relationship is ever-evolving depending upon the structure of the economy and the strength of the financial markets. Hence, it is necessary to continuously validate some of the macro relations such as the relationship between fiscal policy and interest rates. Towards this, the present paper tries to revisit the empirical relationship by using the Structural Vector Autoregression and Toda-Yamamoto causality approach. The study tries to empirically examine and understand the transmission channel through which fiscal policy could affect short-term, medium-term and long-term interest rate in India. Our results suggest that the fiscal deficit has direct and indirect effects on the interest rates. While there appear to have a marginal impact in the short-term, however, through the indirect channel, i.e., through inflation, fiscal policy has a larger positive impact on interest rates in the long run. It also finds that shocks to foreign interest rate and inflation tend to increase interest rates in India. In terms of the policy, in the long run, there is a need for containing structural part of fiscal deficit within the Fiscal Responsibility and Budget Management (FRBM) framework. 
     
    Key Words: - Fiscal Deficit; Interest Rate; Structural Vector Autoregression (SVAR); India.
     
    JEL Classification Codes:  H62, E40, C32
     
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Convocation Address at Banaras Hindu University delivered on 23 December 2019, by Dr. Vijay Kelkar, Chairman, NIPFP

  • Jan, 2020
  • Authors Vijay Kelkar
  • Details NIPFP Working Paper No. 295
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Fiscal Prudence for What? Analysing the State Finances of Karnataka

  • Jan, 2020
  • Authors Jannet Farida Jacob and Lekha Chakraborty
  • Details NIPFP Working Paper No. 293
  • Abstract

    Karnataka is the first state in India to have introduced a fiscal rules framework, even before the central government had enacted the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. The Karnataka Fiscal Responsibility Act was enacted in 2002. Karnataka is consistently fiscally-prudent with its revenue deficit-to-GSDP ratio reducing to near-zero and the fiscal deficit-to-GSDP ratio below 3%. How the state has achieved fiscal prudence? Is it through revenue buoyancy or through expenditure compression? Our analysis shows that the tax-to-GSDP ratio of the state is not increasing and it is around 7% of GSDP. As around 70% of state finances come from own revenue resources, has the declining buoyancy in “own revenue” prompted the state to go for selective expenditure compression to maintain fiscal prudence? Examining the expenditure side, we found that the state has compressed its capital expenditure and marginally decreased its spending on education and social welfare and nutrition. This has its ramification on the outcomes of education, on the one hand, in terms of declining enrolment at the primary level and increasing dropout rates in secondary level, and on the other hand, rendering Karnataka as one of the most vulnerable states in terms of nutrition (anthropometric) indicators. There seems to be a shift in the focus of public spending from education and health to water and sanitation, within the social sector budget. At this juncture, it is intriguing that the state, with comfortable levels of fiscal consolidation since 2005, has resorted to heavy off-budget borrowing to finance state programmes.  This has added to the already increasing ratio of interest payment to own revenue receipt, albeit off budget borrowing being hardly one percent of GSDP. The fiscal marksmanship analysis showed systematic bias in the forecasting of own tax revenue, grants and capital expenditure. This calls for the reduction in the volatility of intergovernmental fiscal transfers to the state as well as improving the assumptions and forecasting methodologies of the macro-fiscal variables like own tax revenue and capital spending.

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Macroeconomic Policy Coherence for SDG 2030: Evidence from Asia Pacific

  • Jan, 2020
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 292
  • Abstract
    The paper analyses the macroeconomic policy coherence required for sustainable development goals (SDGs) in the context of Asia Pacific region. Specifically, the paper analyses the monetary, fiscal and structural policy reforms and suggest specific policy tools to integrate SDGs in macroeconomic policies. The analysis reveals that the transition of macroeconomic framework from ‘discretion’ to ‘controlled discretion’ and ‘rules’ acts as a constraint to integrate SDGs into the policy framework. In the region, the monetary policy is increasingly focusing on inflation targeting, while the fiscal policy is based on the threshold rules of fiscal deficit-GDP ratio. Within these constraints of the macroeconomic framework, a few countries in the region have identified specific policy tools to integrate SDGs within a ‘beyond GDP paradigm’- in particular using the tools of accountability like gender budgeting, the climate responsive budgeting and the strategies for financial inclusion.
     
    Key words: SDG, Macroeconomic policy coherence, Asia Pacific
     
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Possible Impact of Withdrawal of GST Compensation Post GST Compensation Period on Indian State Finances

  • Jan, 2020
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 291
  • Abstract
    Given the ongoing shortfall in GST collection and uncertainty associated with revenue on account of SGST collection, many states have approached the Fifteenth Finance Commission (FFC) for possible extension of the GST compensation period by another three years, i.e., up to 2024-25. Since the decision on possible extension of the GST compensation period is yet to be taken, it is important to assess possible impact of withdrawal of GST compensation beyond the transition period, i.e., beyond 30 June 2022, on Indian state finances. Any shock to state finances due to withdrawal of GST compensation after the GST transition period may have profound impact on India’s fiscal management and therefore macroeconomic stability. Since such impact assessment has not been carried out in Indian public finance literature yet, the present paper attempts to fill the gap.
     
    Even if the GST compensation period is extended beyond 30 June 2022, union government may not have adequate fiscal space to provide GST compensation to states at the ongoing annual growth rate of 14 percent, unless either tax buoyancy and/or nominal growth rate of GDP improves. Exploring a possible design of GST Compensation Cess may help the governments to reduce uncertainty (arbitrariness) in setting the growth rate of revenue protection and also provide inducement to states to put additional tax efforts to augment GST collection. Moreover, given the uncertainties associated with GST collection and possible recovery of Indian economy from the ongoing slowdown, a suitable design of GSTCC may release stress from the union finances on account of GST compensation payment obligation. 
     
    Key Words: Goods and Services Tax (GST), GST Compensation Cess, Revenue Protection, Fiscal Stress, Tax Design, Indian State Finances.
     
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India - Is the Tax System Neutral in India: An Analysis of Tax Treatment of Selected Funds

  • Jan, 2020
  • Authors Suranjali Tandon
  • Details Issue: Finance and Capital Markets (formerly Derivatives & Financial Instruments), 2020 (Volume 22), No. 1 IBFD
  • Abstract
    One of the fundamental principles of taxation is neutrality. In finance this assumes significance since the decision to invest must not depend on tax. It is also true that any departure from neutrality must be grounded in sound economic purpose. Neutrality is desirable for well-functioning financial markets. Investment funds form an integral part of financial markets. These can operate through different structures and invest in different asset classes. Some of these funds can channel resources to sectors that are considered key for growth and development. Selecting AIF, REIT, InvITs and securitization trusts in India the tax system is compared for these and evaluated. It is found that the existing structure is not neutral and this article presents scope for policy change.
     
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Agri-Environmental Sustainability of Indian States during 1990-91 to 2013-14

  • Jan, 2020
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 290
  • Abstract
    Improving economic viability of Indian agriculture is contingent upon agri-environmental sustainability (AES). For agriculture, environment acts as a sink of pollution load as well as inputs for production. Objective assessment of environmental impacts of Indian agriculture and impacts of polluted environment on agriculture are crucial for AES. The costs of polluted environment on agriculture will be borne by farmers in terms of loss of productivity and quality of farm produces. Comprehensive assessment of economic costs of environment on Indian agriculture is lacking. On the other hand, unless internalize environmental impacts of agriculture will be borne by the society – in terms of depletion and degradation of water resources, land degradation and emissions of GHGs. Environmental impact of agriculture will be largely borne by vulnerable sections of the society who cannot afford to adopt pollution aversion practices (or technologies) to avoid health hazards. Moreover, marginal and small farmers may also not be able to mitigate the impact of polluted environment on their farmland by adopting various coping mechanism (pollution averting behavior). Therefore agri-envirionmental sustainability of Indian agriculture is important for wellbeing of Indian farmers.  
     
    In the absence of system of integrated environment and economic accounting (SEEA) in India, present paper builds a comprehensive agri-environmental sustainability index (AESI) based on 40 indicators to assess the potential (possible) impact of agriculture on environment. The study captures both spatial and temporal aspects of AES by covering 17 general category states for the period 1990-91 to 2013-14. The study comes out policy suggestions which could be useful to adopt sustainable agricultural practices. 
     
    Key words: agro-ecosystem & environment; agri-environmental sustainability; agri-environmental indicator; sustainable agriculture; environmental sustainability; Indian states. 
     
    JEL Classification Codes: Q56, Q15, C00
     
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