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Working papers

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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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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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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