An autonomous research institute under the Ministry of Finance


Fiscal Rules and the Energy Transition: Estimating the Extractive Tax Buoyancy in Indian States

Publication date

Mar, 2024


NIPFP Working Paper No. 407


Lekha Chakraborty and Emmanuel Thomas


Against the backdrop of fiscal transition concomitant to energy transition policies with climate change commitments, revenue from extractive sector needs a recalibration in subnational fiscal space. Extractive tax is the payment due to the government in exchange for the right to extract the mineral substance. Extractive tax has been fixed and paid in multiple tax regimes, sometimes on the measures of ad valorem (value based) or profits or as the unit of the mineral extracted. Using the ARDL methodology, this paper analyses the buoyancy of extractive revenue across the States in India, for the period 1991-92 to 2022-23 and analysed the short run and long run coefficients and their speed of adjustment. There are no identified structural breaks in the series predominantly because of the homogenous extractive policy regime shift to ad valorem from unit based regime. Our findings revealed that extractive tax is a buoyant source of own revenue, though there is distinct State-specific differentials. The policy implication of our study is crucial for “just transition” related to climate change commitments where extractive industries’ tax buoyancy is compared to other tax buoyancy across Indian States, and be used as the base scenario to estimate the loss of revenue when fiscal transition sets in with energy transition 
Keywords: fiscal rules, energy transition, tax buoyancy, ARDL, extractive sector regime
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