An autonomous research institute under the Ministry of Finance

 

Working papers

How much Debt is Optimal for the Major Indian States? Economic Growth vs. Debt Sustainability

  • Jun, 2024
  • Authors Rudrani Bhattacharya, C. Prasanth and R. Kavita Rao
  • Details NIPFP Working Paper No. 411
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Understanding States’ Debt and Bond Markets

  • Jun, 2024
  • Authors Radhika Pandey, Madhur Mehta, Bency Ramakrishnan, Utsav Saksena, Nipuna Varman and Kriti Wattal
  • Details NIPFP Working Paper No. 410
  • Abstract
    This paper presents a comprehensive set of stylised facts on state government debt markets in India. Based on the analysis of facts, it highlights some challenges pertaining to the debt market for states. Shallow liquidity, absence of risk asymmetry and concentrated borrowings by a few states are some of the challenges in the realm of state market borrowings. The paper proposes some policy reforms to improve the state debt market and the required regulatory framework for a more efficient and functional market for state government securities in India.
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Gender Budgeting: Public Financial Management Tool for Accountability

  • May, 2024
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 409
  • Abstract

    Gender budgeting is a public financial management (PFM) tool to ensure accountability mechanisms. The analysis of "process" indicators of gender-responsive PFM (GRPFM) reveals that India has been successful in integrating a gender lens within the budget cycle, including in financial planning and allocation, and in effective implementation. However, a legally mandated GRPFM would be crucial for the sustained impact of gender budgeting on gender equality outcomes. The empirical analysis of the link between gender-responsive PFM and gender equality outcomes showed that the flexibility of finances is crucial for a government to implement GRPFM. Unconditional fiscal transfers have a relatively greater impact on gender equality outcomes than conditional transfers. The plausible mechanism through which unconditional tax transfers impact gender equality outcomes lies in the flexibility of use of tax transfers by subnational governments in prioritizing their gender-related commitments. This inference has policy implications for the 16th Finance Commission.

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Potential implications of the EU’s Carbon Border Adjustment Mechanism

  • Mar, 2024
  • Authors Anandita Gupta, Radhika Pandey and Sanhita Sapatnekar
  • Details NIPFP Working Paper No. 408
  • Abstract
    In May 2023, the European Union (EU) implemented the Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage risks associated with its ambitious climate policies. Examining CBAM in conjunction with the EU Emissions Trading System (EU ETS), the paper highlights potential CBAM implications and discusses proposals to address key issues. CBAM is likely to impact exporters’ profitability and trade competitiveness, favouring nations with faster decarbonisation ability and robust carbon pricing systems. The paper advocates for non-EU countries to strengthen their emissions monitoring, reporting, and verification (MRV) systems and carbon pricing frameworks. For India, changing the nomenclature of the coal component under the GST Compensation Cess to a ‘carbon tax’ could be considered to reduce industries’ potential carbon liabilities. The development of India’s national emissions trading system could consider CBAM-related impacts, international standards, and insights from other jurisdictions, to strengthen its carbon market and achieve its climate commitments. Lastly, the paper highlights the need for a task force under the leadership of the Prime Minister for continuous engagement on evolving carbon market issues and the dynamic global trade landscape.
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Fiscal Rules and the Energy Transition: Estimating the Extractive Tax Buoyancy in Indian States

  • Mar, 2024
  • Authors Lekha Chakraborty and Emmanuel Thomas
  • Details NIPFP Working Paper No. 407
  • Abstract
    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 
    policies. 
     
    Keywords: fiscal rules, energy transition, tax buoyancy, ARDL, extractive sector regime
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How did Transition to the GST Regime Affect Inflation in India?

  • Feb, 2024
  • Authors Rudrani Bhattacharya
  • Details NIPFP Working Paper No. 405
  • Abstract
    Indian indirect tax regime shifted from multiple tax system to a uniform rate value added Goods and Services tax regime on the 1st July 2017. There have been long standing public debate on probable costs and benefits of GST regime replacing long-existed multiple tax regime. In the cost side, while producers and sellers may have to incur some fixed cost at the beginning of the regime to comply with the government rates and structures, shift to GST system is expected to reduce prices via reducing cascading effects of multiple tax layers and increasing efficiency of the logistics and distribution system. Empirical literature on both advanced and developing economies suggest mixed impact of adopting GST system on inflation. This paper contributes to this literature by investigating effects of GST system on CPI, WPI inflation and their major components namely food and core inflation in India. Applying intervention method in a multivariate framework, controlling for other macroeconomic shocks and duration of intervention endogenously identified using structural breaks in inflation series, we find a positive effect of GST on headline inflation in India via inflationary impact on retail food prices.
     
    JEL Classification: C54, E31, E65
    Keywords: GST, Inflation, Structural breaks, Intervention method, India.
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COP28 and Environmental Federalism: Empirical Evidence from an Emerging Economy, India

  • Feb, 2024
  • Authors Lekha Chakraborty, Amandeep Kaur, Ranjan Kumar Mohanty, Divy Rangan and Sanjana Das
  • Details NIPFP Working Paper No. 406
  • Abstract
    Against the backdrop of COP28, this paper investigates the impact of intergovernmental fiscal transfers (IGFT) on climate change commitments in India. Within the analytical framework of environmental federalism, we tested the evidence for Environmental Kuznets Curve (EKC) using a panel model covering 27 Indian States from 2003 to 2020. The results suggest a positive and significant relationship between IGFT and the net forest cover (NFC) across Indian States. The analysis also suggests an inverse-U relationship between Gross State Domestic Product (GSDP) and the environmental quality, indicating a potential Environmental Kuznets Curve (EKC) for India. The findings substantiate the fiscal policy impacts for climate change  commitments within the fiscal federal frameworks of India, and the significance of IGFT in increasing the forest cover in India. This has policy implications for the sixteenth Finance Commission of India in integrating a climate change related criterion in the tax transfer formula in a sustainable manner. 
     
    Keywords: Environmental Federalism, Environmental Kuznets Curve, Intergovernmental Fiscal Transfers, Government Expenditures
     
    JEL Codes: E6, H5, H7
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Beyond GDP and Public Policies for Gender Equality: Gender Budgeting in Asia Pacific

  • Dec, 2023
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 404
  • Abstract

    The paper analyses gender budgeting as a fiscal innovation to translate the public policies into 'beyond GDP’ commitments incorporating a gender lens. Earmarking a specific proportion of fiscal allocations for gender budgeting can be only a second best principle of gender budgeting. With the advent of fiscal decentralisation, a few countries in the Asia Pacific region have experimented with gender budgeting as a PFM tool of accountability and fiscal transparency. However the lack of gender disaggregated data and lack of flexibility of finance at local levels thwarted the process of deepening gender budgeting. The legally mandated gender budgeting process led by Finance Ministries has been found as the sustainable model of gender budgeting to translate resources into results. Fiscal marksmanship (deviation between budget estimates and actual spending) is an important prerequisite for establishing such result-based fiscal frameworks of gender budgeting.

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Distributional Impact of Indian GST

  • Oct, 2023
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 403
  • Abstract
    We estimate GST rate-wise distributional impact of GST across different consumer groups in India for 2021-22. Multiple rate structure and fixation of GST rates based on product specification make it difficult to assign a specific GST rate (or estimation effective GST rate) across items (or group of items) of consumption. In absence of recent consumer expenditure survey of the National Sample Survey Organisation (NSSO), we use CMIE’s Consumer Pyramids Household Survey (CPHS) for 2021-22. We distribute all India average monthly per capita consumption expenditure (MPCE) on 123 items (or group of items) across 9 tax categories [viz., exempted, very low (exempt to 5%), low (5%), lower middle (5 to 12%), middle (12 to 18%), upper middle (18%), upper (28%), high (>28%) and ‘Out of GST’] by regions (i.e., rural and urban) and estimate the share of each tax category in aggregate average MPCE across fractile classes of MPCE. Given the tax category, as the share of consumption expenditure increases (or decreases) with increasing size of the consumption basket (or as represented by fractile class of MPCE), tax burden will increase (or decrease).
     
    We find that on average 24.5 per cent of average MPCE is exempted from GST. When we add the shares of very low tax and low tax categories with exempt category for all regions, we find that 57.6 per cent of average MPCE (or average size of the consumption basket) is either exempted or face lower tax rate (upto 5%) in the GST regime. On average 14.5 per cent of average MPCE constitutes consumption of ‘Out-of-GST’ items. Therefore, only 28 per cent of average MPCE of consumers face GST rates above 5 per cent. Out of 28 per cent of average MPCE, on average 14 per cent attracts GST rate 18 per cent and the rest is distributed across lower middle, middle and high GST rate categories.
     
    Consumer groups with higher average MPCE benefits the most from the tax (GST) exemptions – both in rural and urban areas. Very low and low tax rate benefit the consumers with lower average MPCE. Except for fractile class greater than P95 in urban areas, consumption of items under lower middle tax category shows proportionate tax burden across all fractile classes of MPCE. It is lower strata of consumer groups (having relatively lower average MPCE) who bear the burden of tax on items falling under middle tax category the most. Both in rural and urban areas, lower strata of consumers (upto fractile class P30) face progressive tax burden on consumption of items falling under middle GST rate. Items falling under high tax rate category are intoxicants (cigarettes, bidi and other tobacco products) and in addition to the highest GST rate these items attract GST compensation cess. Distributional effects of tax burden of intoxicants differ across consumer groups and across regions. Consumption of alcoholic beverages, liquor at restaurants, petrol & CNG (compressed natural gas), diesel, and electricity attract taxes other than GST. There is progressivity of tax burden for this category across fractile classes in all regions.
     
    Key Words: distributional impacts, tax incidence, progressive, regressive, Goods and Services Tax (GST), Value Added Tax (VAT), rate restructuring, India.
     
    JEL Codes: H22, D30, E21, Z18
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DEEP DE-CARBONIZATION AND REGIONAL EQUITY

  • Oct, 2023
  • Authors Sanjay Mitra, and Rohit Chandra
  • Details NIPFP Working Paper No. 402
  • Abstract
    This paper presents a preliminary assessment of the nature and extent of the financial impact of the mitigation policies centered on deep decarbonization of India’s electricity sector on the budget deficits of the states with relatively low endowments of solar and wind power. The impact could be quite substantial, adding 8.66% to the combined deficits of the VRE poor states under fairly conservative assumptions. The impact is most severe on the three coal-rich states of Jharkhand, Odisha and Chhattisgarh. Absent an acceptable framework for an equitable sharing of costs and benefits across the states and with the centre, these developments could impede the realization of the national goals for climate change mitigation.
     
    India’s ambitious targets call for a deep de-carbonization of the electricity sector through an accelerated deployment of renewable energy and reduced use of coal. This could exacerbate existing regional inequalities, between the states in the west and the south and those in the north and east. While variable renewable energy (VRE) sources namely, solar and wind are concentrated in a few states in the western and southern parts of the country, coal reserves occur mainly in the eastern part that also happen to have the lowest VRE endowments. As the share of VRE in electricity production and consumption rises, these locational characteristics and the dominant role of state ownership in the electricity sector together play into the finances of the VRE poor states through higher expenditure and lower revenues.
     
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G20 and Climate Responsive Budgeting

  • Sep, 2023
  • Authors Amandeep Kaur, Ajay Narayan Jha and Lekha Chakraborty
  • Details NIPFP Working Paper No. 401
  • Abstract

    Against the backdrop of G20, we analyze the climate responsive budgeting as a tool of transparency and accountability towards climate change commitments. The detail Demand for Grants across sectors in India is analyzed for the climate intensive allocations under the identified eight components of adaptation matrices, incorporating crop improvement and research, drought proofing and flood control, forest conservation, poverty alleviation and livelihood preservation, rural education and infrastructure, health, risk financing and disaster management, for the period 2020-21 to 2023-24 for adaptation accountability in India. We found that more than forty sectoral ministries have adaptation related expenditure, accounting for around 5 per cent of GDP in India. The fiscal marksmanship and PEFA scores related to these eight core areas revealed that there are deviations between Budget Estimates and Actual spending across sectors. The template for climate responsive budgeting attempted in the paper has policy contributions to make the climate responsive budgeting matrices sustainable and comparative across G20 countries.

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How is India Doing? Mid Year Macroeconomic Review

  • Sep, 2023
  • Authors Rudrani Bhattacharya, Manish Gupta, Dinesh Kumar Nayak, Radhika Pandey in Association with Sudipto Mundle
  • Details NIPFP Working Paper No. 400
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Understanding deviations from the fiscal responsibility law in India

  • Aug, 2023
  • Authors Pratik Datta, Radhika Pandey, Ila Patnaik and Ajay Shah
  • Details NIPFP Working Paper No. 399
  • Abstract
    The Parliament enacted the Fiscal Responsibility and Budget Management Act (FRBM Act) in 2003. In most of the following years, union public finance has deviated from the strictures of the law. Was it poor drafting of the statutory escape clause in the FRBM Act, 2003 that led to these deviations? We show that this is not the correct diagnosis. The escape clause that flows from the Constitution of India - the special procedure for money bills - gives the union government the ability to get around shackles placed under Parliamentary legislation.  If fiscal rules are sought to be implemented through laws, the legal strategy needs to take this constitutional framework into account.
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OECD Policy Evaluation of Child Protection Schemes: Evidence from Odisha, India

  • Aug, 2023
  • Authors Lekha Chakraborty, Amandeep Kaur, Jitesh Yadav and Balamuraly B
  • Details NIPFP Working Paper No. 398
  • Abstract

    Using OECD evaluation criteria, we analysed the child protection schemes of Odisha to understand whether legal commitments on child protection are translated into fiscal commitments. The intergovernmental fiscal transfers and State specific specifically targeted programmes for the children in need of care and protection (CNCP) and children in conflict of law (CCL) are evaluated   using the OECD criteria of   relevance, coherence, effectiveness, efficiency and sustainability. Using the theory of change, various fiscal interventions for child protection are analysed with activities, outputs, intended outcomes and impacts. The analysis revealed that in the post pandemic fiscal strategy of Odisha, various programmes have been designed by the government to tackle the capability deprivation, hardships and vulnerabilities faced by the children within the budgetary frameworks and these programmes are made fiscally sustainable through public expenditure convergence within the classification of budgetary transactions. However, the low utilisation ratios of the funds and the institutional constraints are identified as the challenges in the effective implementation of child protection programmes in Odisha.   

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Status and Compilation Issues in National Accounts Statistics: A Short Summary

  • Jul, 2023
  • Authors Amey Sapre and Vaishali Bhardwaj
  • Details NIPFP Working Paper No. 397
  • Abstract

    This paper is a summary of the status and compilation issues in the National Accounts. In addition to a brief summary of the sources and methods of estimation, the paper covers the set of issues that have emerged with the 2011-12 series of national accounts after it was introduced in 2015. Some of the key measurement issues are in the manufacturing sector, particularly after the introduction of the MCA21 database. A summary of issues with the expenditure side estimates and regional accounts are also presented. While the focus is largely on the estimates of aggregate value added, a comprehensive analysis is also needed for other macro-aggregates, such as consumption expenditure, savings, capital formation, input-output transaction tables and transactions of the public sector. Given the present compilation of national accounts, major macro-indicators such as savings, expenditure side estimates, etc. are yet to be compiled at the state level. On the sources and method front, issues with the household sector and status of the data sources are highlighted. Lastly, new challenges for GDP estimation, Code of Practice, among others are some of the areas that need systematic research initiatives for overall improvement of official statistics.

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Fiscal Behaviour and Climate Change Commitments in India: Analysing the Budget Credibility

  • May, 2023
  • Authors Lekha Chakraborty, Ajay Narayan Jha, Jitesh Yadav, Amandeep Kaur and Balamuraly B
  • Details NIPFP Working Paper No. 396
  • Abstract

    Abstract

    Against the backdrop of fiscal rules – legally mandated fiscal responsibility and budget management (FRBM) Act - our paper explores the budgetary forecast errors of climate change related public spending in India. The fiscal rules stipulate that fiscal deficit to GDP ratio should be maintained at 3 per cent. However, in the post-covid fiscal strategy, a medium term fiscal consolidation path of 4.5 percent fiscal deficit-GDP is envisioned by 2025-26. Within this fiscal consolidation framework, we analysed the budget credibility of fiscal commitments for climate change in India. We analysed the fiscal behavioural variables in terms of bias, variation and randomness, and captured the systemic variations in budgetary forecast related to climate change for a period 2017-18 to 2020-21 across sectors. We identified the sectors where systematic components of forecasting errors are relatively higher than random components, where minimising errors through altering the fiscal behavioural models are done by revising the assumptions and by applying better forecasting methods. A State level decomposition of the public spending revealed that disaggregated fiscal space available for developmental spending constitute around 60 per cent of total. However, identifying the specifically targeted public spending related to climate change across all States and analysing its fiscal markmanship can further the subnational inferences.

     

    Keywords: Fiscal marksmanship, budget forecast errors, climate change, state finances.

     

    JEL codes: H30, H50, H70, Q58

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Does Monetary Policy in India Anchor Inflation Expectation?

  • Apr, 2023
  • Authors Rudrani Bhattacharya
  • Details NIPFP Working Paper No. 395
  • Abstract

    Abstract

    India has entered into the Inflation Targeting (IT) monetary policy regime in 2015. Under this rule-based monetary policy regime, changes in the policy rate transmits to the economic activities and current inflation rate by altering the inflation expectation of the rational economic agents. This study empirically investigates whether monetary policy can anchor inflation expectation of economic agents in India. In our analysis, the survey based measure of households’ inflation expectation published by the Reserve Bank of India (RBI) captures inflation expectation of private agents. Using a co-integrated Vector Auto Regression (VAR) model, we find moderate but significant monetary policy transmission in India via interest rate channel. However, inflation expectation seems to be unanchored by monetary policy conduct in the country. Our finding is found to be robust under alternative modeling frameworks.

    JEL Clasification: C32, C5, E31, E52, E58.

    Keywords: Inflation expectation, Monetary policy, Co-integrated VAR, India.

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Direct Taxes Litigation Management and Alternate Dispute Resolution


Recent Reforms in India’s Corporate Income Tax Regime: Rationale, Impacts and Improvements

  • Apr, 2023
  • Authors Supriyo De
  • Details NIPFP Working Paper No. 393
  • Abstract

    Abstract

    In a recent innovative policy reform, India’s corporate income tax system was overhauled with optional lower rates in lieu of giving up complex deductions. However, official data reveals a puzzle wherein larger companies ha ve op ted mo re fo r th e lower optional rates while smaller ones appear reticent in switching to the optional regime. This paper explores this issue using empirical methods. The evolution of tax rates is tracked through reforms simplifying the tax system in the 1990s, the subsequent conundrum of zero tax companies leading to introduction of minimum alternate tax, and the persistence of lower effective tax rates for larger c ompanies. This provides the rationale for a simpler tax regime with lower rates but fewer deductions. The user cost of capital approach is used to examine the economically relevant tax impact across various sectors and ownership types. The results indicate that in terms of user cost, the various lower tax options are not attractive, and under certain situations may be worse for younger and smaller companies. In light of the analysis, policy options are suggested to improve the scheme so as to achieve the laudable objective of implementing a simple tax regime with lower rates and minimal deductions.

    Keywords: Corporate income tax, User cost of capital, Minimum alternate tax

    JEL Codes: D21, E22, H25

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Revenue Performance Assessment of Indian GST

  • Apr, 2023
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 392
  • Abstract

    Abstract

     

    By comparing comparable revenue streams of pre- and post-GST periods, in this paper we assess the revenue performance of GST in India for the period 2012-13 to 2022-23. Sustaining revenue streams of the Union and State governments (in terms of percentage share in nominal Gross Domestic Product or GDP) between the pre- and a post-GST period is important for sustainable Public Finance Management. We observe that post-GST tax buoyancy in the GST regime has improved for the Union, state and general governments. The GST-to-GDP ratio of the Union as well as state governments has not yet improved during the post-GST period as compared to the equivalent share of respective revenue streams in GDP during the pre-GST period. Based on available information, we estimate C-efficiency ratio (or collection efficiency), Effective Tax Rates, Compliance Gap and Policy Gap of GST for the period Q2:2017-18 to Q3:2022-23. We find that average C-efficiency of GST is 0.54 (or 54%) which is in line with available evidence from developing Asian countries. Average ETR has gone up from 10.91 per cent in 2020-21 to 12.21 per cent in 2021-22 and 12.56 per cent up to Q3:2022-23 of 2022-23. The share of policy gap in C-efficiency is higher than compliance gap which is in line with available evidence from EU and OECD countries. 

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COP27 and Public Expenditure for India’s First National Adaptation Communication

  • Mar, 2023
  • Authors Lekha Chakraborty, Ajay Narayan Jha, Amandeep Kaur, Jitesh Yadav and Balamuraly B.
  • Details NIPFP Working Paper No. 389
  • Abstract
    Against the backdrop of India’s commitment towards the COP27 in Egypt, we applied a multi-sectoral approach to Climate-Public Financial Management (PFM) to prepare the existing resources for India’s first National Adaptation Communication. Within the analytical matrices for identifying the financial resources for National Adaptation Communication (NAC), we have calculated the intensity of climate change components in the Demand for Grants by sectors - based on eight components incorporating crop improvement and research, drought proofing and flood control, forest conservation, poverty alleviation and livelihood preservation, rural education and infrastructure, health, risk financing and disaster management, for the period 2020-21 to 2022-23 for adaptation accountability in India. We found that more than forty sectoral ministries have adaptation related expenditure, accounting for around 5 per cent of GDP in India. This analysis based on an open-ended approach is mandated to identify the NAC baseline scenario estimates. The budget credibility analysis broadly revealed a perfect fiscal marksmanship with value 1 , with an exception of variations across a few sectors. Within the “fiscal rules”, an aggregate analysis of discretionary fiscal space plausible for adaptation available at the subnational level of governments is arrived at, with non-developmental spending crossing a threshold ratio of 40 percent in a few States.
     

     

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Effect of Tax Cut on Investment: Evidence from Indian Manufacturing firms

  • Feb, 2023
  • Authors Adam HussaIn
  • Details NIPFP Working Paper No. 390
  • Abstract
    Does a reduction in the corporate income tax rate trigger investments in developing countries? This paper answers this question in a difference in differences framework. Using firm-level data on Indian manufacturing firms I study the effect of the 2019 and 2020 Indian tax reform that reduced the corporate income tax rate for domestic firms by 5 %. I find that the reduction in corporate income tax led to a significant increase in the investments of domestic firms. The magnitude of the effect is found to be stronger for larger domestic firms than the smaller ones. These results imply that corporate income tax cuts can increase investment in developing countries and large domestic firms benefit more than small firms from a tax cut.
     
    Keywords: Investment, Corporate tax, Indian manufacturing firms.
    JEL Codes: G31, H25, H71
     
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Public Financial Management and Crime Against Children: A State level Analysis in India

  • Feb, 2023
  • Authors Jitesh Yadav and Lekha Chakraborty
  • Details NIPFP Working Paper No. 391
  • Abstract
    Using fixed effects models, we explore the efficacy of Public Financial Management (PFM) in tackling crime against children, controlling for economic growth. The fiscal variables are found to have significant impact on reducing the crime against children, and not the economic growth. The coefficients from the non-linear models revealed an inverse relationship between the squared term of social sector spending and crime against children. The specific PFM tools like child budgeting (c-PFM) per se instantaneously did not reduce the crime against children. However, the year of inception of c-PFM and crime against children are inversely related in the models, indicating that the long-term c-PFM is efficacious in reducing crime against children, which has policy implications in the sense that the budgetary allocation on child protection within the c-PFM needs to be strengthened.
     
    KEYWORDS: Public Financial Management; Child Budgeting; Social Spending; Child Protection
     
    JEL CLASSIFICATIONS: C33; H00; H5; J13
     
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Revenue Implications of GST on Indian State Finances

  • Jan, 2023
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No 388
  • Abstract

    Assessing the revenue implications of GST on Indian state finances cannot be contained to compare the revenue stream which is subsumed into GST with State GST collection alone. Since GST subsumes many taxes from state tax bases, comparing the revenue performance of taxes which are outside the GST framework would be equally important. Moreover, in federal system revenue implication of shortfall in tax collection of the federal government is also likely to spill-over to sub-national finance in terms of lower tax devolution. Sustaining revenue streams of state governments is important for sustainable Public Finance Management (PFM) and therefore a comprehensive assessment of state finances before and after GST would be important. This paper attempts to fill the gap in exiting literature by assessing the revenue of 18 major states during pre- and post-GST periods.

     

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Estimating the Excess Demand for Government Schools in Delhi: How much capacity creation is necessary?

  • Sep, 2022
  • Authors Priyanta Ghosh and Sukanya Bose
  • Details NIPFP Working Paper No. 387
  • Abstract
    The estimation of demand for public schooling remains a neglected field in school planning of Delhi, even though supply trails demand by a huge margin. This paper underlines the very substantial expansions and investments necessary to accommodate the excess demand for government schools in Delhi. The empirical estimation takes into account various sources of demand for expansion: (i) within the existing government schools that are facing supply shortages, often of an acute variety; (ii) arising from children now attending low fee private schools, and, (iii) from children in school age groups, but out of school. Population growth over the next five years representative of future demand in the fringe areas of Delhi is also factored in. The estimates indicate that the expansion required is a mammoth doubling of existing capacities in government schools, 107% increase on existing capacity. Based on estimated excess demand, 632 composite and 275 primary government schools separately need to be established. With the present level of public expenditure on education at 1.4% of GSDP for Delhi, this entails an increase in expenditure on education by 50% of the existing levels. That is, a very significant push in public expenditure is necessary for meeting the excess demand for public schooling.
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Analysis of State Budgets 2022-23 of Major States in India

  • Aug, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 386
  • Abstract
    After two consecutive years (2019-20 and 2020-21) of fiscal stress, state finances in India show sign of improvement in 2021-22RE. With rising economic growth, revenue mobilization has improved which helped states to increase expenditures during 2021-22. To cope up with the revenue stress and rein in deficits and debts, states have contained growth in expenditures during 2019-21. Despite all efforts consolidated fiscal deficit of 18 major states went up from 2.49% of aggregate GSDP in 2018-19 to 2.56% in 2019-20 and 3.89% in 2020-21. Consolidated public debt of 18 states increased from 19.66% of GSDP in 2018-19 to 20.53% in 2019-20 and 23.04% in 2020-21. States received GST compensation from the GST compensation fund which helped them to contain revenue and fiscal deficits. States also received back-to-back loans in lieu of shortfall in GST compensation fund from the Centre during 2020-21 and 2021-22 which helped them to contain public debt. Given the growth prospects of GSDP in 2022-23, overall revenue side of State Budgets 2022-23 seems realistic as states have set cautious targets in revenue mobilization. It is also to be highlighted that states have taken into account fiscal implications of the end of GST compensation regime in the budget estimates of 2022-23. States have resumed following the path of fiscal consolidation post COVID-19 pandemic. Successes in achieving revenue as well as expenditures targets set in the budget of 2022-23 could help states to control
    deficits and debts.
     
    Key Words: State Finances, budget analysis, fiscal management, revenue mobilization, public finance management, public debt, fiscal deficit, revenue deficit, India.
     
    JEL Codes: H20, H61, H62, H63
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Revenue Assessment of Goods and Services Tax (GST) in India

  • Jul, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 385
  • Abstract
    Indian GST completes five years on 30 June 2022. Revenue assessment is important to assess the success of GST in protecting revenues of the Union as well as state governments. By compiling comparable revenue streams for pre- and post-GST regime, we compare the revenue performance of GST for the period 2005-06 to 2021-22RE. Our analysis shows that both the Union and state governments could not reap the benefits of GST in terms of higher revenue mobilization yet. By increasing revenue mobilization from “Non-Shareable Duties” and “Cesses on Commodities” under Union Excise Duties, the Union government could manage the revenue shortfall in GST. The GST compensation (both from the GST compensation fund as well as back-to-back loans from the Centre) helped states to sustain the revenue stream as prevalent prior to introduction of GST. In the post GST compensation regime, some states may face revenue stress. States where dependence on GST compensation (as measured by the share of GST compensation in SGST) as well as the share of SGST in own tax revenue are higher (e.g., Goa, Punjab and Chhattisgarh), they may face relatively higher revenue stress than other states. 
     
    Key Words: Revenue assessment, Goods and Services Tax (GST), Revenue protection, GST Compensation, India.
    JEL Codes: H20, E62, H26
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Income Tax data and Facets of transparency

  • May, 2022
  • Authors R Kavita Rao
  • Details NIPFP Working Paper No. 384
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Exploring a Design of Carbon Tax for Coal and Lignite based Thermal Power Sector in India

  • Apr, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 382
  • Abstract
    According to India’s Third Biennial Update Report to the United Nations Framework Convention on Climate Change, electricity production contributes half of India’s total carbon dioxide (CO2) emission (without LULUCF) and 40 per cent of CO2e (CO2 equivalent) emission in 2016. Coal and lignite based thermal power sector is the predominant source of electricity generation in India and contributes 74 per cent in 2019-20. In COP26, India has committed to achieve net-zero (in CO2e emission) target by 2070. Therefore, any strategy to reduce total CO2e emission in India cannot spare emission reductions from coal and lignite based thermal power plants (TPPs).
     
    To accelerate achieving India’s emission intensity reduction target to 45 per cent, we explore a design of carbon tax for coal and lignite based TPPs. Given the constraints involved to design a carbon tax based on Pigouvian tradition, we estimate a revenue neutral rate of tax on CO2e emission by converting taxes on coal and lignite. To make the proposed carbon tax system less disrupting for tax administrations, we propose adjustments of input tax credits with carbon tax liability. The proposed carbon tax will be incentive-compatible, as carbon efficient TPPs will face lower carbon tax burden.
     
    Key Words: Emissions of Green House Gases (GHGs), Carbon Tax, Revenue Neutrality, Thermal Power Generation, Coal and Lignite, India.
    JEL Codes: H23, Q54, Q4, P43
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Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods

  • Apr, 2022
  • Authors Robert C. M. Beyer, Abhinav Narayanan and Gogol Mitra Thakur
  • Details NIPFP Working Paper No. 383
  • Abstract
    Exceptionally high rainfall in the Indian state of Kerala caused major flooding in 2018. This paper estimates the short-run causal impact of the disaster on the economy, using a difference-in-difference approach. Monthly nighttime light intensity, a proxy for aggregate economic activity, suggests that activity declined for three months during the disaster but boomed subsequently. Automated teller machine transactions, a proxy for consumer demand, declined and credit disbursal increased, with households borrowing more for housing and less for consumption. In line with other results, both household income and expenditure declined during the floods. Despite a strong wage recovery after the floods, spending remained lower relative to the unaffected districts. The paper argues that increased labor demand due to reconstruction efforts increased wages after the floods and provides corroborating evidence: (i) rural labor markets tightened, (ii) poorer households bene ted more, and (iii) wages increased most where government relief was strongest. The findings confirm the presence of interesting economic dynamics during and right after natural disasters that remain in the shadow when analyzed with annual data.
     
    JEL Codes: Q54, R22, D12, O44
    Keywords: natural disasters, aggregate activity, household behavior, spatial analysis
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The Determinants of Tax Morale in India

  • Apr, 2022
  • Authors Chinmay N Korgaonkar
  • Details NIPFP Working Paper No. 381
  • Abstract
    This is a study of tax morale in India. The concept of tax morale or the citizens’ attitude towards tax compliance is vital for the design and implementation of fiscal policy. Tax morale can foster voluntary compliance and hence support the enforcement and deterrence-driven approaches of the tax agencies. However, limited literature regarding the tax morale of Indian citizens is available. The present paper tries to bridge the gap by analyzing the available data for India from the 5 waves of the World Values Survey (1990-2014). Treating tax morale as a dependent variable, this study estimates the factors influencing it. We show that the trust in government, parliament, and civil services positively affects the tax morale of Indian citizens. The correlation between trust in the legal system and tax morale was also positive but not significant. Among the socio-economic variables, education improves the intrinsic motivation of individuals towards tax compliance. Interestingly, the full-time/salaried persons have lower tax morale as compared to the self-employed employees. This finding has important policy implications, given that the full-time/salaried class contributes a significant share of the total taxes paid by the individual taxpayers in India.
     
    Keywords: Tax Morale; Tax Compliance; India; Fiscal Policy; Self-employed; Salaried.
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Trends and Patterns of Tax Expenditures on Union Taxes in India

  • Apr, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 380
  • Abstract
    The Union government foregoes revenue on account of various tax exemption/incentive schemes promoted for various purposes. The Constitution of India assigns power of taxation of broad-based taxes to the Union (Federal) government (e.g., Corporate Income Tax, Personal Income Tax, Union Excise Duty, Customs duty). Like the Union government, provincial (or State) governments also provide tax incentives (within the scope and coverage of their taxation power) but revenue impacts (or foregone) of those tax exemption schemes at the state level are not assessed yet. Comprehensive assessment of tax expenditures is important especially after the introduction of Goods and Services Tax (GST). Given the data limitations, the present paper assesses the trends and patterns (structure) of tax expenditures of Union taxes during 2005-06 to 2019-20. Overall tax expenditures of the Union government declined from 8.15 per cent of GVA (Gross Value Added) in 2008-09 to 1.69 per cent in 2019-20. It was possible mainly on account of continuous reduction of tax expenditures on indirect taxes. Tax expenditures on direct taxes (on account of CIT and PIT only) also declined from 32.7 per cent of direct tax (CIT & PIT only) collection in 2008-09 to 22.4 per cent in 2019-20. The tax expenditures related to Union Excise Duty (UED) and Customs Duty (CD) declined from 152 per cent in 2008-09 to 12.6 per cent of tax collection on account of UED and CD in 2019-20. Post Global Financial Crisis (GFC) successive Union budgets raised standard rate of excise duty gradually to pre-GFC level, pruned down the exemption list and consolidated rate structure of excise duty (or CenVAT) to prepare for introduction of GST. This helped the government to contain tax expenditures on
    indirect taxes.
     
    Key Words: Tax Expenditures, Tax Incentives, Tax Policy, Federal Government, Union Taxes, India.
    JEL Codes: H25, H24, H61, H11, D72
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Public Financial Management and Budgeting for Children: Evidence from Telangana, India

  • Mar, 2022
  • Authors Anindita Ghosh Divy Rangan and Lekha Chakraborty
  • Details NIPFP Working Paper No. 379
  • Abstract
    Telangana is the newest State in India, formed in June 2014. We focussed on an ex-post analysis on State’s public financial management for children (C-PFM), incorporating the fiscal marksmanship of such spending. We observed that there are 58 child-specific schemes and programs across seven departments in Telangana, in which, the education sector has 79.48 percent of total child budgeting, constituting 8.45 percent of the total expenditure of the State. However, the outcome indicators showed that there are wide intra-State differentials related to selected indicators. The anthropometric indicators also reveal that malnutrition is a major challenge in the State. The Covid 19 pandemic has widened the digital divide in the education sector. The inferences from the public finance analysis for children (PF4C) undertaken in our paper provides thebaseline analysisfor the post-covid fiscal strategy for PF4C in Telangana. 
     
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Union Budget 2022-23: Fiscal-Monetary Interface

  • Mar, 2022
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 378
  • Abstract
    If the Reserve Bank of India hikes the policy rates against the backdrop of the mounting geopolitical risks and inflationary pressures, the growth recovery process may slow down. At the same time, keeping the status quo on policy rates for a prolonged period could catalyse the de-anchoring of inflationary expectations. The Union Budget 2022–23 has accommodated high fiscal deficits and has emphasised on “crowding-in” effects of public infrastructure investment. The intensity of global macroeconomic uncertainties on economic recovery in India can be lessened through sustainable fiscal and monetary
    policy coordination.
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GST, End of Compensation Regime and Stress on State Finances

  • Mar, 2022
  • Authors R Kavita Rao
  • Details NIPFP Working Paper No. 376
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Intergovernmental Fiscal transfers and Expenditure on Education in India: State level analysis, 2005 to 2020

  • Mar, 2022
  • Authors Sukanya Bose, Noopur, A. Sri Hari Nayudu
  • Details NIPFP Working Paper No. 377
  • Abstract
    There is large heterogeneity across Indian states in the public provisioning of education. The intergovernmental transfers with a mandate for equalisation have a role to play so that states can ensure these essential public goods. This study analyses the trends and patterns in intergovernmental transfers for education - school education and higher education, across three finance commission periods (2005-2020) which saw a number of important policy-induced changes in the overall fiscal framework. The 14th Finance Commission's (2015-2020) proposal of higher share of tax devolution to the states and a move towards general purpose transfers has been hailed as a major shift, which has allowed the states larger fiscal space. On the other hand, the central grants on education, particularly school education, have stagnated. Has it translated to an upward trend in spending on education in the 14th Finance Commission period vis-à-vis the earlier decade? Over time, have the public expenditure levels on school and higher education converged across states, which is the objective of equalisation? The answers to both the questions are negative. The study concludes with some policy recommendations, including restoration of financial concurrency through larger allocations on central schemes on education, and a special focus on the states at the bottom.
     
    Key Words: Intergovernmental Fiscal Transfers, Grants, Finance Commission, Centrally Sponsored Schemes, SSA, Mid-day Meal, Education Expenditure
     
    JEL: H52 H71 H75 H77 I21 I22 I25
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Progressivity of Public Spending on Health care at the Sub-state Level in India: An Empirical Investigation in Tamil Nadu and Bihar

  • Mar, 2022
  • Authors Pritam Datta, Jay Dev Dubey and Mita Choudhury
  • Details NIPFP Working Paper No. 375
  • Abstract
    Progressivity of public spending on health is considered welfare enhancing, and is often quantified through Benefit Incidence Analysis (BIA). In India, BIA analyses have been confined to state-level aggregates, and intra-state variation in progressivity among districts have remained largely unknown due to limited availability of disaggregated data. We use multiple datasets to overcome the data constraint and undertake BIA at the district-level in the two states of Bihar and Tamil Nadu. Disaggregated information from respective state treasuries were combined with central and state samples of surveys conducted by the National Sample Survey Organization to estimate utilisation and incidence of the benefits of public spending in districts. Results highlight that several districts diverge from state-level aggregates on progressivity, and this call for targeted heath interventions at the state-level. Further, a comparison of public spending across vertical tiers of the health pyramid and utilization of health facilities in the two states provide insights on state-level effectiveness of health interventions. The study lays forward a methodological framework to undertake BIA at the district-level in India.
     
    Key Words: Health Financing, Benefit Incidence Analysis, Public Spending on Health, Bihar, Tamil Nadu. India
     
    JEL Classification: H22, I14, I15, I18
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Linkage between Income and Government Expenditure at Indian Sub-nationals: A Second- Generation Panel Co-integration Techniques

  • Mar, 2022
  • Authors Dinesh Kumar Nayak and Bhabesh Hazarika
  • Details NIPFP Working Paper No. 374
  • Abstract
    The present paper examines whether the Wagner’s law that represents the long-run relationship between income and public expenditure holds at the subnational level in India. The paper covers 21 Indian States and a time-period of 40 years from 1980-81 to 2019-20. The validity of the law was examined for nine different panels of states broadly under income categories and geographical regions. Unlike first-generation panel techniques which fails to account the aspects of cross-sectional independence and heterogeneity, the present study tests the validity of the Wagner’s law using the second-generation panel unit root method and cointegration approach. The analysis adopts Panel Dynamic Ordinary Least Square to test the evidence of Wagner’s law hypothesis. The findings reveal that Indian states are heterogeneous in terms of public expenditure, and there exists cross-sectional dependence. There also exists a long-run cointegrating relation between state-level income and state-level public expenditure. For the full sample, while this study finds holding Wagner’s law, there is a mixed validity of the law at different panels across income categories and regions. In addition, it is observed that the validity of Wagner’s law in the Indian Subnational context is mainly driven by the high-income major states, and it is more capital outlay centric.
     
    Keywords: Wagner’s Law; Second Generation Panel Root and Co-integration Tests; Indian States
     
    JEL Classification: C23; H30; H72
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History of disinvestment in India: 1991-2020

  • Mar, 2022
  • Authors Sudipto Banerjee, Renuka Sane, Srishti Sharma, and Karthik Suresh
  • Details NIPFP Working Paper No. 373
  • Abstract
    This paper presents the history of disinvestment in India between March 1991 to December 2020. The history can be divided into four broad phases: 1991-1999 (Phase I), 1999-2004 (Phase II), 2004-2014 (Phase III), and 2014-2020 (Phase IV). There have been relatively few strategic sales, and governments have largely preferred the minority sale route.
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Child Development Index in India: Performance at District Level

  • Feb, 2022
  • Authors Ritu Mathur, Namrata Jaitli and Amarnath H.K.
  • Details NIPFP Working Paper No. 371
  • Abstract
    This paper estimates the child development Index at state level for all the states using methodology given in NIPFP working paper 370 - “Estimating Child Development Index at District Level – A Methodology”. This paper presents the results for the year 2015, comparing 640 districts on India Child Development Index. This could be used as a baseline for Sustainable Development Goals and for subsequent monitoring of progress of children quinquennially through 2030. The paper also comments on the expenditure on children at the State level in light of the performance of districts on ICDI.
     
    Key Words – India Child Development Index, Children, Child Development Index, district level estimation, district level data, SDG, Save the Children
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Estimating Child Development Index in India at the District Level – A Methodology

  • Feb, 2022
  • Authors Ritu Mathur, Namrata Jaitli and Amarnath H.K.
  • Details NIPFP Working Paper No. 370
  • Abstract
    The 2030 Agenda for Sustainable Development calls for transforming our world and working towards the future we want. The future we want will, to a large extent, be driven by the youth and the children of today. The survival and development of children to their full potential is essential for building a peaceful, prosperous and sustainable planet. Sustainable development starts with investing in each child. The rights of the child to survival and development, non-discrimination and freedom from all forms of violence are critical for building strong and harmonious communities.
     
    For India, it is particularly important to invest in children now. As per the Economic Survey 2018-191, India’s demographic dividend will peak around 2041, when the population share of working-age (20-59 years) is expected to hit 59 per cent. The Government of India has been focussing on building human capital through investing in education for all, healthcare and skilling. Any slip-up will lead to sub-optimal leveraging of the demographic dividend with severe socio-economic consequences.
     
    There are vast inter-State and intra-State differentials in the status of children. It is important to be aware of regions and districts that do not fare as well as others to facilitate appropriate prioritisation of resources. A first step in this direction is to be able to assess the status of children for all the districts of the country on the basis of globally accepted methodology.
     
    This paper uses the methodologies adopted by Save the Children for two of its global indices for ranking countries on the status of children, adapts it to the India context proposing an India Child Development Index (ICDI).
     
    Key Words – Children, Child Development Index, district level estimation, district level data, SDG, Save the Children
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Covid19 and Unpaid Care Economy: Evidence on Fiscal Policy and Time Allocation in India

  • Feb, 2022
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 372
  • Abstract
    Against the backdrop of covid19 pandemic, measuring unpaid care economy is significant to capture the roles and well-being of men and women. The COVID-19 pandemic has slowed down the global economy, however there is an increasing recognition that the care economy was “working harder than ever”. The economists and policymakers are increasingly getting aware of the consistently ignored care economy in their models and macroeconomic policies. This paper analyses the unpaid care sector in India using the recent Time Use Survey 2020 and explores the fiscal policy measures to address the sector. In India, the Time Use Survey was conducted in 1999-2000, for only selected six States of India. After twenty years, Government of India published the second macro-level Time Use Survey for all the States and Union Territories in India. The chronology of 1440 minutes a day coded into economic activities under Systems of National Accounts (SNA) and Non-SNA in the Time Use Survey 2020 provides evidence for time poverty and time stress, especially for women in rural and urban India. Time poverty affects the income poverty. The allocation and efficiency of nonmarket working time in the unpaid care economy is important for economic growth along with market working time. As the macro policies are constructed only on the basis of market economy, the nonmarket work in the unpaid care economy continues to remain statistically invisible. The link between fiscal policy and time allocation suggest that worsening public infrastructure investment affects the market work with evident gender differentials. The fiscal policies designed to redress income poverty can be partial if we do not take into account the aspects of time poverty. In the post-pandemic fiscal strategy, strengthening the “Employer of Last Resort” (ELR) policy is crucial for tackling the plummeting employment and the humanitarian crisis. However, unless a comprehensive care economy policy is integrated in the Public Financial Management (PFM) tool like gender budgeting to tackle the time poverty in India, the efficacy of such ELR policies can be partial, due to significant gender differentials in accessing the ELR fiscal space.
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The “Scissors Effect” of COVID 19 Pandemic on State Finances: Emerging Evidence on Expenditures

  • Jan, 2022
  • Authors Mita Choudhury and Pritam Datta
  • Details NIPFP Working Paper No. 369
  • Abstract

    The COVID pandemic imposed dual pressures on state finances. Contraction in revenues was coupled with an increased pressure to expand public spending to counter the adversities of the pandemic. Evidence from 26 states suggest that aggregate revenues fell by about 5 per cent in the pandemic year, 2020-21. Despite this fall, States have maintained a 5 per cent average growth rate of aggregate spending. Public expenditure in social sector grew at a significantly higher rate than economic services. Within social services, health expenditure in 15 selected major states grew at 16 per cent, the highest among all. This rise in health spending has however, come at the cost of expenditures in a number of other important sectors.  Expenditures in education and nutrition remained nearly stagnant in the pandemic year. 

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Covid19 and Public Finance for Children: A case study of State of Odisha, India

  • Jan, 2022
  • Authors Amandeep Kaur and Lekha Chakraborty
  • Details NIPFP Working Paper No. 368
  • Abstract
    Against the backdrop of covd-19 pandemic, the paper analyses the budgetary allocations pertaining to children, for the state of Odisha. The State of Odisha is consistently using Public Financial Management (PFM) tools for human development to ensure budget transparency and accountability. Our findings suggest that Odisha spent around 5 per cent of GSDP on child budgeting during 2019-20 to 2021-22. The fiscal marksmanship analysis and the PEFA scores of sector-specific child budgeting reveal deviation between budget estimates and actuals in a few sectors. Higher budgetary allocation for children per se does not translate into higher actual spending. Strengthening budget accountability is therefore crucial for better human development outcomes for children. 
     
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Fiscal Illusion and Wagner’s Law: Evidence from Indian Subnational Finances

  • Jan, 2022
  • Authors Bhabesh Hazarika and Dinesh Kumar Nayak
  • Details NIPFP Working Paper No. 367
  • Abstract
    In recent decades, public spending both at the Union and Subnational Governments in India has been increased by manifold. Often the taxpayers systematically misperceive their tax burden as well as benefits received from the publicly provided public goods and services. This leads to fiscal illusion, i.e., they demand more public goods than they would if they had complete information resulting in a higher public spending than the desired level. The present paper analyses the subnational finances in India in search of evidence of fiscal illusion and flypaper effects as well as the validity of Wagner’s law in explaining the increased public spending over the decades. Panel data from 1980-81 to 2019-20 for 20 subnational governments of India were analysed using second-generation panel unit root, and cointegration approaches accounting for the cross-sectional dependence and heterogeneity. The results of the PMG estimation provide evidence for the existence of fiscal illusion induced by intergovernmental transfers and fiscal deficit and a flypaper effect. While the validity of Wagner’s law becomes weak when controlled for intergovernmental transfers and fiscal deficit, the degree of publicness of public spending is found to be low at the subnational level in the country. The increased reliance on the transfers has become a norm for many states, especially the north-eastern and hilly states having implications for the own tax collection at the subnational level, and as a result, the fiscal gap has become larger and larger.
     
    Key words: Public Spending; Fiscal Illusion; Flypaper Effects; Wagner’s Law; Second-generation Panel Unit Root and Cointegration Approach
    JEL Classification: C23; H40; H72; H77
     
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Issues concerning Grievance Redress Mechanism (GRM) in Indian financial regulators

  • Jan, 2022
  • Authors Karan Gulati and Karthik Suresh
  • Details NIPFP Working Paper No. 364
  • Abstract
    This paper aims to measure and understand the performance of Indian financial sector regulators vis-a-vis grievance redress. This is based on learnings from international best practices. It looks at the structure and policy apparatus of redress systems of financial regulators and the challenges consumers face while accessing them. Regulators differ in their approaches to grievance redress mechanisms, face conflicts of interest, and follow complicated processes. They also take too long to resolve grievances and do not have a defined point of closure. The regulations are often not accessible to consumers, and when they are, they are difficult to understand. This implies a need to simplify the procedure, better inform consumers, and include enforcement provisions to enable greater grievance redress.
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Do Indian financial firms have a robust Grievance Redress Framework in place?

  • Jan, 2022
  • Authors Vimal Balasubramaniam, Renuka Sane, Mithila Sarah and Karthik Suresh
  • Details NIPFP Working Paper No. 365
  • Abstract
    A rapid expansion in the Indian financial sector has necessitated a growing focus on improving customer service which also includes the delivery of a robust Grievance Redressal Mechanism (GRM). A GRM is a formal system through which complaints are resolved in a time-bound manner, thus improving public service delivery in the financial system. This paper assesses the GRM policy content that is available on the website of 21 financial service providers in India. The firms include the top three firms by market share in each sector - banking, insurance, pensions, payments, mutual funds, and brokerages. Financial firms differ in their performance across different metrics, highlighting areas for improvement with rievance redress processes with financial services providers (FSP).
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Designing a sound GRM: Principles and International Experience

  • Jan, 2022
  • Authors Sudipto Banerjee and Aditi Dimri
  • Details NIPFP Working Paper No. 366
  • Abstract
    Grievance redress mechanism (GRM) is an essential component of the consumer protection framework in the financial sector. Its presence and performance can have far-reaching effects on the participation of consumers in the financial sector. UsingGRM a consumer can seek expeditious and fair remedy against the wrongs of the financial service providers. While there are various forms of GRM (both judicial and non-judicial), in this paper, we study the design of a non-judicial redress agency. Using first principles we study the design of a financial redress agency by focusing on the critical organisational decisions of — manner of establishment, governance, funding, dispute resolution processes, and performance evaluation. We build on two strands of literature, one studying the GRM design at a conceptual principles level and the other providing practical guidance for setting up a redress agency. Further, the paper analyses four different redress agencies, namely, — Financial Ombudsman Services Scheme in the U.K., Kifid in the Netherlands, Consumer Financial Protection Bureau in the U.S., and Insurance and Financial Services Ombudsman Scheme in New Zealand. The paper contributes by assimilating all the varied resources to map principles, decisions, and case studies to provide an accessible yet comprehensive introduction to designing a GRM for a varied readership.
     
    Keywords: GRM, redress agency, financial ombudsman, dispute resolution, consumer protection in finance
     
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