Gauging the pulse of the economy in real time is essential for timely implementation of short to medium term policies. In this study, we nowcast quarterly YoY GDP growth, which is essentially predicting the GDP growth for the quarter Qt, when the GDP number for Qt is not yet released, using information from high frequency indicators (we use monthly indicators for our analysis) spanning that particular quarter Qt. The GDP growth is regressed on a set of unobserved factors estimated from a large set of monthly indicators, where the regression coefficients are assumed to vary over time, and thus takes care of the structural changes endogenously.  The model is estimated in a state-space format. We find that this model captures the turning points of the Indian growth trajectory better than alternative models such as the dynamic factor model.

The two papers prepared under this initiative were published in the Edward Elgar Handbook on “Federalism and Gender” series and published as an AusTax Policy blog of the Tax and Transfer Policy Institute (TTPI) at Crawford School of the Australian National University in May 2021.

Against the backdrop of the National Nutrition Mission, this paper undertakes a nutrition public expenditure review in the State of Gujarat. The anthropometric data analysis shows that malnutrition is still a silent emergency in the state, though there has been an improvement over the years. The fiscal space for nutrition in a multi-sectoral framework was analysed and only an insignificant portion of state budget was found to be allotted to nutrition-related spending. The public expenditure incidence analysis of the Integrated Child Development Services (ICDS) showed that there are access differentials in the units utilized patterns, and fiscal marksmanship analysis shows that there is huge deviation between what is allotted and what is spent. The outcome parameters show the differential with other states as well as inter-district differentials within Gujarat that persist in the anthropometric indicators relate to undernutrition. This calls for strengthening the nutrition-public expenditure review in the state as part of the public financial management.

This study is an outcome of the research project, `Innovations in Public Finance’, supported by a grant from the Gates Foundation. The central theme of this report is the `Budget Credibility and Fiscal Forecasting Errors of 28 States in India’ led by Dr. Pinaki Chakraborty. Dr. Chakraborty presented the findings of this study during the NIPFP Annual State Finances meeting at the India International Centre, New Delhi, in August 2019. The other members of the team are Prof. Lekha Chakraborty, Dr. Manish Gupta and Ms Amandeep Kaur. The theme paper on budget credibility was presented by Lekha Chakraborty at the 75th meeting of the International Institute of Public Finance in Glasgow, Scotland, in 21-23 August 2019. The completed project report was published as a NIPFP monograph in 2020. 

Governance in a multi-level government system envisages well defined relations, particularly financial, for each level of government to discharge its functions efficiently. Over the years, far-reaching changes have come about in such systems whereby ‘private corporate bodies’ and ‘international agencies’ too participate in governance. These facilitate the transition from a hierarchical form to ‘cooperative structures of federalism’.

This project will investigate the relationship between competitiveness in Indian state elections and the structure of the fiscal choices made by state governments. To do so, this project propose to: (i) construct a complete record of constituency level electoral data for major Indian states; (ii) measure political competitiveness in state elections using a variety of indexes; and (iii) use measures of competitiveness, along with other political and economic factors, as part of a dynamic empirical model of state fiscal policy choices. This work will contribute to the study of the relationship between governance and public policy in India.

Design the training programme and curriculum in co-ordination with partner institutions and deliver lectures during the two weeks training programme in Bishofta, Addis Ababa.

The study on revenue and expenditures of Union Territories (UTs) — with and without legislature — has several fiscal dimensions as the expenditures of most UTs are borne directly by the Central Government, through the budget of the Ministry of Home Affairs. The study has undertaken a comprehensive analysis of the revenue and expenditure position of UTs and has proposed a budget allocation mechanism that will bring objectivity in fund allocation to them, particularly those without legislatures. The study has relevance for the Ministry of Finance as it addresses an important aspect of fund allocation to UTs and identifies areas for improving fiscal management in them.

The Pradhan Mantri Awas Yojana (Urban) (PMAY-U) is one of the flagship programmes of the Government of India with the objective of achieving the long-term goal of ‘Housing for All by 2020’. This study analyses the performance of the programme and its overall impact on the economy. Assessing the employment effect of the investment made under PMAY-U, the study estimated that the programme generated sizeable employment (mandays) in the economy through its direct and indirect channels. The study also noted positive impacts of the schemes in terms of a few tangible and intangible benefits to the beneficiary households.

Short to medium term forecasting of the inflation rate is important for economic decision making by economic agents and timely implementation of monetary policy. In this study, we develop two alternative forecasting models for year-on-year (YOY) inflation in the Consumer Price Index (CPI) in India, using a large number of macroeconomic indicators. The YOY CPI inflation and its predictive indicators are found to be non-stationary and cointegrated. To address this issue, we employ the Vector Error Correction Model (VECM) and Dynamic Factor Model (DFM) modified for non-stationary time series to forecast CPI inflation. We find that in terms of Root Mean Square Error (RMSE), the VECM model performs marginally better than the DFM model. However, both models are found to have the same predictive accuracy using the Diebold-Mariano test.

The next phase of the National Health Mission is scheduled to commence next year. This study undertook an analysis of the financial contributions of the scheme in the health spending of states, and highlighted specific factors affecting them. The analysis suggested that the scheme contributed to reduction of inequality in health spending across states and added funds to the lower tiers of the health pyramid. However, the contribution of the scheme towards strengthening health systems in relatively poor performing ‘high-focus’ states was limited. Lack of complementary inputs in states, capacity issues and weak public financial management affected the performance of the scheme.

This research programme will undertake some of the groundwork required for suggesting an appropriate approach for public financing of health in 4 selected Indian States. The programme will be carried out in three stages. First, it will identify the resource contours within which health financing options will have to be built in the selected States. Secondly, it will analyse the existing nature of government spending on health in the four States, and review experiences with different approaches to public financing of health both in India and abroad. Thirdly, it will derive an understanding of the nature of health systems present in the selected States, and use the insights from the above analysis to outline appropriate policy choices for public financing of health in the four States.

The federal structure of India divided taxation powers between the Union and state governments on certain principles. However, states have lost jurisdiction over many taxes with the introduction of GST, since many state taxes were subsumed into the new tax. The extent of consequent revenue losses to states is not clear. On the other hand, the revenue situation of the states has not improved sufficiently. Despite tax efforts by state governments, improvements in own tax revenues are marginal. Against this background, states need to focus on the other existing taxes to improve their own tax revenues. The major revenue yielding taxes to states in the post-GST regime are excise tax and stamp duty and registration fees. This study attempts to measure tax capacity and tax effort in collecting stamp duty and registration fee across different Indian states.

At the request of the 15th Finance Commission, the Institute undertook a study to assess the impact of higher devolution to the states under the 14th Finance Commission on various macroeconomic parameters such as GDP growth, inflation, fiscal deficit and public debt. Further, the study also proposed a new FRBM roadmap and the feasibility of achieving a US$ 5 trillion economy by the end of the 15th Finance Commission award period.