This study provides an assessment of the performance of Indian economy in 2024-25 and a review of the outlook going forward factoring in the impact of disruptive policies of the second Trump administration at home and abroad, especially the announced ‘reciprocal’ tariff policies that are temporarily paused. The impact of the ‘reciprocal tariffs’ when the present pause ends is likely to be mixed. While India’s top ten exports to the US, such as electronic goods, gems & jewellery, machinery, textiles, metals and transport equipment may be adversely affected by higher tariffs, India may garner greater market share in products such as footwear, apparel, electrical machinery, toys, etc., where India’s competitor countries are subject to higher tariffs.

Growth moderated in FY 2024-25, probably due to the slowdown in government spending and investment growth. Inflation being benign has enabled the central bank to change its monetary policy stance to ‘accommodative’, further cutting the Repo rate and taking other measures to enhance liquidity. Looking forward to FY 2025-26, our outlook for GDP growth remains pessimistic, amid rising trade uncertainty and anticipated slowdown in United States (US) and global growth. However, the accommodative monetary policy stance positions the central bank well to pursue expansionary policies to counter growth slow down.

On the fiscal side, FY 2024-25 saw a sharp contraction in central government’s capital expenditure growth. States’ combined capital expenditure also contracted sharply during April-Feb 2024-25. The central government has shifted to a new fiscal consolidation framework with debt-to-GDP ratio as the key monitoring target. This provides more elbow room for increasing capex to revive growth should it slow down due to the Trump Shock. Such a slowdown would also lead to a shortfall in budgeted revenues of the central and state governments, thereby raising deficits. This would serve as an automatic stabiliser to help revive growth, which could be reinforced by enhanced government capex.

JEL Classification: E6, E3, E4, H5, H6
Keywords: State of the Economy, Trump tariff shock, growth & fiscal outlook, India

The paper is an attempt to find the determinants of own sources of revenue of Gram Panchayats, for eight Indian states and evaluates the efficiency of the collection of tax revenues given the availability of resources available to them. The paper disaggregates the own source revenue data into two major sub-components i.e., property tax and other taxes/user charges, using the primary data collected for the years 2020-21, 2021-22, 2022-23 and 2023-24. The size of the population and the extent of commercial activities play a significant role in driving the own source revenues of the Gram Panchayats. However, the distance from the nearest town is a deterrent in the property tax collections of the villages. A look into the efficiency of revenue collection by the Gram Panchayats reveals that the mere presence of staff, pucca houses and commercial establishments does not guarantee efficient collection of own source revenue. The efficient utilisation of the available resources is also dependent on the political willingness, innovative practices, efficient governance and financial autonomy of the Gram Panchayats.

The public expenditure benefit incidence analysis captures how well public services are targeted to certain groups in the population, across gender, ethnicity, income quintiles and geographical units. The BIA involves allocating unit cost according to individual utilization rates of public services. Using the latest International Classification of Diseases (ICD) produced by World Health Organisation (WHO) in 2024, we examine the disease-wise utilisation of publicly subsidised healthcare in India using benefit incidence analysis.  Quite contrary to the earlier studies on benefit incidence analysis based on “aggregate” public health spending, our study attempts the benefit capture at the disaggregate level by meticulously mapping the WHO_ICD disease-specific codes to the data extracted from the unit records of the latest National Sample Survey health 75th rounds. Our broad findings based on the WHO_ICD disease-specific benefit incidence analysis revealed that the public health subsidy appears to be pro-poor or progressive in distribution for WHO_ICD categories, however with evident gender differentials. The disaggregated benefit incidence analysis based on ICD codes also showed that there is no “elite capture” in the public health financing in India. This inference has policy implications for strengthening the role of fiscal policy in tackling inequalities in the access and utilisation of health care in India.

Keywords: concentration curve; public healthcare; health inequality; benefit incidence analysis; gender

JEL Codes: H75, I14, I18

Against the backdrop of Public Finance Management (PFM) reforms, we analyse the issues related to budgetary processes and fiscal transparency issues in India, at the national and subnational levels of government in India. The fiscal codes are built on the premise that fiscal transparency is crucial for financial stability, and the information asymmetries are a significant cause of financial-fiscal failures. The study identified various data gaps in the budgetary preparation and dissemination processes, and the need for the revised fiscal rules, and a comprehensive accounting and reporting processes. These inferences have policy implications for the recently constituted 16th Finance Commission. We suggest that constituting a Fiscal Council can improve fiscal transparency, efficiency and consistency.

JEL: M4, E6, E62, H50, H61, H70, H71, H72, H76

Keywords: Budget Systems, Fiscal Transparency, public expenditure management, fiscal rules.

Against the backdrop of the recent Supreme Court ruling that royalty on mining leases is not a tax, the existing mining royalty regime in India is analysed. Royalty is based on economic rent and is designed on the basis of multiple regimes, including ad valorem, tonnage-based, and profit-based across countries, and is not a tax. The buoyancy estimates of mining royalty revealed that structural reforms in the mining sector can augment revenue generation to the states. Further debates are required to analyse the rates and base of the mining royalty regime in India, given that resource-rich states in India remain income-poor. 

India's performance in accelerating human development (HD) has been less impressive than its growth performance, a structural feature considering how long it has persisted. The divergent macroeconomic and HD performance underlies an ascendancy of macroeconomic policy over social development policies. Based on the experience of the Indian economy in the last three decades, this paper explores the limitations of the present fiscal policy framework, its objectives, and targets vis-à-vis the imperatives of HD. An alternative macro-fiscal framework integrating HD is proposed.

The trends across the last thirty years indicate a stagnant HD spending to GDP in India.  The normative distances, international comparisons, and lack of progress vis-a-vis past positions, all seem to indicate underperformance in social spending in India and the need for greater investments.   Fiscal policy determines the scope of social policy and HD outcomes through its control over fiscal space.  The misalignment of the fiscal policy framework and the necessary social spending to support social policy was experienced in a variety of ways, as this paper demonstrates.  The key propositions for an alternate fiscal framework integrate the specificities and potential of HD and points in the direction of (i) considering HD expenditure as investments and not as current consumption in fiscal policy, (ii) considering the simultaneity of demand and supply effects of public investments for the macroeconomy (iii) taking cognizance of the self-sustaining nature of HD investments, and (iv) moving fiscal sustainability to a long-term horizon. 

Keywords: Social Spending, fiscal Policy, macro-fiscal framework, human development, fiscal rules, normative targets.