The agricultural markets in India suffer from high price volatility. There may be an element of a Samuelson Cobweb Model at work, which generates a cycle of boom and bust. When food prices are high, consumers protest and in the years when food prices are low, farmers are in distress and demand loan waivers. Four policy pathways address the cobweb model: storage, national trade, international trade and futures trading. We argue that the Constitution imposes an obligation upon the Union government to achieve a national market. We work out an implementable set of steps through which the Union government can obtain a national market for agricultural produce.

We analyse the fiscal marksmanship of the macro-fiscal variables of Union Government ex-ante and ex-post to the formulation of fiscal rules in India. The fiscal marksmanship is the accuracy of budgetary forecasting. The fiscal rules have been legally mandated in India in the form of fiscal responsibility and budget management Act (FRBM Act) in 2003, with a criteria of fiscal-deficit to GDP threshold ratio of 3 per cent and gradual phasing out of revenue deficit. Using Theil’s inequality coefficient (U) based on the mean square prediction error, the paper estimates the magnitude of errors in the budgetary forecasts in India during the period ex-ante and ex-post to fiscal rules, and also decomposed the errors into biasedness, unequal variation and random components. The decomposition of errors is to analyze the source of error in both the regimes. Our results found that in both regimes, the proportion of error due to random variation has been significantly higher, which is beyond the control of the forecaster. In other words, the error due to bias of the policy maker in preparing the Union Budget has been negligible in the period ex-ante and ex-post to fiscal responsibility and budget management (FRBM) Act in India. This result has significant policy implications especially in the context of repeal of 2003 FRBM Act in India and the Union Government has announced clauses for a ‘New FRBM Act’ in India in the Finance Bill 2018.

*This paper has been accepted for publication in Journal of Financial Research.

This paper presents the business cycle chronology for the Indian economy. Two distinct phases are analysed. The pre-1991 period when the cycles were mainly driven by monsoon shocks. The post 1991 phase where we see the emergence of conventional business cycles driven by investment-inventory fluctuations. The paper sheds light on the economic conditions that shaped the nature of cycles in the two phases. The concluding section of the paper presents an overview of the economic conditions post 2012.

Action point 15 of the BEPS program mandated developing a Multilateral Instrument to modify bilateral tax treaties. A country signing this instrument will be able to modify all treaties, where other contracting parties have also notified the same. This would allow countries to simultaneously and therefore swiftly adopt measures to tackle BEPS in a large number of treaties. Based on the country positions submitted to the OECD as on 30th August 2017, this paper makes an attempt to assess this instrument that has succeeded in bringing about the desired changes. A unique database is constructed on the basis of these country positions. Using this database, the paper shows that the benefit of the MLI may be limited in so far as the application of the optional Articles is concerned. In so far as developing countries are concerned, it is found that the gains to these countries may be limited. The adoption of the minimum standards may be the limited success achieved by the instrument.

We discuss the changes in the new 2011-12 base year series of the Index of Industrial Production (IIP) to ask, whether the new series has improved our understanding of the growth in the manufacturing sector. We develop a simple framework to separately estimate the contribution of value and volume based commodities in the growth of the manufacturing index. We find that growth in value based commodities contributes significantly in moving the index in either direction and that high growth in value based commodities coincides with periods of low inflation. Findings also show that movements in the IIP Index are increasingly influenced by the trends of WPI as growth in value based commodities may inflate or become subdued, given the fall or rise in the WPI index. As a case study of value based commodities, we compare the trends of IIP (Pharmaceuticals) and real Net Sales of firms in the pharmaceuticals sector. Our findings show that real Net Sales and IIP have contrasting trends. Such divergent trends between two measures of industrial activity raise crucial questions on the representativeness of the IIP.

We use a sample survey based experiment to estimate the effect of simplified life insurance disclosures. We randomise survey respondents into one of four product advertisements: 1) a baseline product with no additional disclosure; 2) disclosure of the actual rate of return on the product; 3) disclosure of the rate of return and a benchmark return of a similar product; and 4) the rate of return, benchmark return and product features of a more cost-effective competing product. We test if these incremental disclosures affect customer views of the product, and the intention to purchase. We find that relative to the baseline treatment, only treatment 2 had an effect on product perceptions. Treatments which show additional data did not have a differential effect relative to the baseline treatment. None of the treatments had any impact on the intention to purchase.

Abstract: The study presents an analysis of results of a laboratory experiment, conducted in 2015 to assess compliance behaviour in India. The experiment evaluates responses of 133 participants, to changes in key policy instruments like tax rate, penalty rate and audit probability. We find that changes in policy parameters generate varied responses across taxpayers. Audit probability is the only policy instrument that generates relatively consistent response. Further, the results show that individuals can be divided into those who respond to change in audit probability and those who respond to other policy variables, suggesting that no single policy would be adequate to induce suitable behavioural changes in all taxpayers.

Keywords: tax compliance, laboratory experiment, audit probability, tax rate, penalty, exemption threshold, stigma

JEL Classification Codes: H26, H3, C91

This paper analyses the performance of India’s Public Sector Undertakings (PSUs) using measures of labour and overall efficiency and productivity indicators as opposed to financial returns. Using methods that correct for selection bias, the results show that performance contracts do not improve firm efficiency but disinvestment has a very strong positive effect on firm efficiency. Disinvestment improves labour productivity and efficiency, which is not surprising, but it also improves overall efficiency. India should pursue much bolder privatization even of PSUs which claim to be making operational profits – such as Air India, because privatization improves overall firm efficiency and unlocks capital for use elsewhere, especially in public infrastructure, and reduces the possibility of political interference in their functioning in future.

This paper derives the solution to differential games, when there are four sets of players, namely – two political parties (politicians), voters and a special interest group. The basic results are similar as Lambertini(2001, 2014). We find that, an open-loop equilibrium collapses to a closed-loop equilibrium. Therefore, the open-loop equilibrium is a sub-game perfect. Further, the private optimum is always higher than the social optimum in terms of the provision of the expenditure on public good. That is, if both the parties have access to public expenditure for the provision of the expenditure on public good they have the tendency to overspend and can incur higher deficits. Consequently, voters vote retrospectively to the party which overspend and results in higher fiscal deficits. Similarly, a larger private optimal regulatory benefit helps the political parties to receive higher financial contribution. Overall, the fiscal deficit in excess of certain level of threshold can create higher cost to the voters and hence the economy as the future tax and this is more so in the presence of special interest group.

The present study assesses the public procurement system and recent reform initiatives in India and outlines the need for changes in the institutional frameworks. There are several issues in the public procurement activities in India, which stem from fragmented procedures and rules, lack of transparency, widespread irregularities, and unavailability of sufficient procurement professionals. The recent initiatives to establish a consistent and transparent public procurement system have not yielded the desired results. The emergence of the practice of e-procurement as a vital tool in integrating the public service delivery and good governance, however, shows some forward movement towards a transparent, accountable, and competitive procurement regime. Although General Financial Rules (GFRs) and other procurement manuals are exhaustive in nature, these need to be backed by legislative power.

The prime objective of the paper is to construct a robust macroeconomic performance (MEP) index of India using Data Envelopment Analysis (DEA) approach. Six major macro indicators, namely, economic growth, employment rate, terms of trade, inflation rate, fiscal deficit, and pollution are used to computeMEP and Eco-MEP index of the Indian economy from 1980-81 to 2015-16. Overall, both the MEP and Eco-MEP index scores have quite similar best performing years, worst performing years, and have also captured the major events that adversely affected the economy during the last 35 years. This shows that the trend in overall performance of Indian economy was better in the 1980s and the 1990s but has deteriorated after the 2000s. The ARDL Bounds Testing approaches to cointegration methods are used to test the robustness/utility of these indices. The estimated results find that MEP and Eco-MEP have a positive impact on private investment, negative effect on current account deficit (CAD), and positive impact on foreign investment inflows (FIIs) and foreign direct investment (FDI). Hence, the suggested composite MEP index is stable, robust and truly captures the economic performance of India.

The existing studies on trade misinvoicing have focussed on the discrepancy in reported trade statistics between developing and developed countries. The estimates based on such methods rely on the assumption that developed countries report their trade statistics correctly. In this paper, we provide evidence that trade misinvoicing between developed countries is in fact large and any estimate based on such method may not provide an accurate representation of the dimensions of trade misinvoicing in the world. Further, there is need to develop a methodology by which one can attribute the misinvoicing to one or the other trade partner. To address this problem, we offer an alternative methodology. Since the exports of a country are necessarily imports of another country we use domestic factors to predict the export and import misinvoicing for a sample of large misinvoicers for the period 1990 to 2014. Such estimates allow us to establish whether the discrepancy can be attributed to the export or the import side for all countries. We find that the domestic factors better explain the export side, therefore, allowing us to estimate illicit flows through trade misinvocing using the export misinvoicing by all countries.

The literature on regional growth suggests that divergences in infrastructure is a major factor behind the wide and persistent regional growth imbalances in India. Using a state infrastructure-expenditure function, the paper examines the possible factors that determine infrastructure expenditure and its implication for regional imbalance in infrastructure creation across 14 major Indian states. We, in the present study, find that factors such as resource mobilization, per capita income, and population density may result in unequal infrastructure expenditure across states. We also find that factors such as more spending by the infrastructure-deficit states, political stability, and positive spatial dependence in infrastructure expenditure among states have a balancing effect on infrastructure creation across regions. These results suggest the need for augmenting the financial capacity of the infrastructure-deficit states and strengthening the positive spatial dependence among states through creation of interstate infrastructure networks (railways, national highways etc.) and conducive investment climate, which could boost competition among states for better infrastructure creation.

Under the Constitution of India, for a bill to be enacted into a law, it has to be approved by both Houses of the Parliament - the Lower House (Lok Sabha) and the Upper House (Rajya Sabha). There is one exception to this general rule. A bill certified as a 'money bill' by the speaker of the Lower House can be enacted into a law by the Lower House alone, without any approval from the Upper House.

Budget 2017-18 was presented at the time when the global situation is inhospitable, marked with protectionism and domestic environment is constrained by the twin balance sheet crisis. The investment climate is further jeopardised by the note ban.  There was a great deal of expectations on the budget this year to create a policy environment to kick-start the virtuous investment cycle in the economy.  However, this budget has turned out to be a mere ‘business as usual’ budget.  While it does well to be prudent in containing the deficits, it fails to address the critical issue of accelerating investment and employment.  The capital expenditure as a ratio of GDP is static and the clean-up of tax preferences, as promised, to reduce the corporate tax rates is yet to be initiated.   The Finance Minister has lost the opportunity to prune the exemption list and align the excise duty rates in preparation to the GST implementation.  Finally, the measures to reduce cash donations and the introduction of bonds to political parties is cosmetic and is not likely to have any impact on cleaning up political funding as long as anonymity of donors is assured.

The paper examines the medium-term fiscal policy (MTFP) and a more conventional medium-term expenditure framework (MTEF) adopted in India under the provisions of the fiscal rules. The MTFP and the MTEF, professed to improve fiscal discipline in the context of fiscal rules, did not promote a multi-year budget planning process. The abolition of the five-year development planning process and the subsequent decision to remove plan and non-plan distinction from budget classification created a void with regard to the budget planning. This has necessitated developing a revamped fiscal architecture in the form of a medium-term framework to widen the short horizon of the annual budgeting exercise. The paper makes a case for developing structured medium-term budgeting framework (MTBF) building on the existing institutional framework both at the Central and at the subnational level and subsequently incorporating performance indicators in sector strategies.