An autonomous research institute under the Ministry of Finance

 

Working papers

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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Is the tax system neutral in India: An analysis of tax treatment of select funds

  • Jan, 2020
  • Authors Suranjali Tandon
  • Details NIPFP Working Paper No. 294
  • Abstract
    One of the fundamental principles of taxation is neutrality. In finance this assumes signi cance since 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 Securitisation trusts in India the tax system is compared for these and evaluated. It is found that the existing structure is not neutral and paper presents scope for policy change.
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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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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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