An autonomous research institute under the Ministry of Finance

 

Working papers

Fiscal policy cyclicality in South Asian economies

  • May, 2019
  • Authors Radhika Pandey and Ila Patnaik
  • Details NIPFP Working Paper No. 268
  • Abstract

    This paper analyses the cyclical nature of fiscal policy in South Asian economies. Drawing on the recent literature, we assess whether these economies have graduated to a counter-cyclical fiscal policy in the recent period. We find that fiscal policy is procyclical in most of the South Asian economies. Our analysis shows that the evidence of graduation to a counter-cyclical fiscal policy is weak for South Asian economies. Our findings are robust to alternative methods of extracting the cyclical component. This has implications for macro stabilisation policies in these countries and warrants a rethink of the fiscal policy framework.

     

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Financial sector reforms in India

  • May, 2019
  • Authors Radhika Pandey and Ila Patnaik
  • Details NIPFP Working Paper No. 267
  • Abstract

    India’s financial landscape has changed dramatically over the last decade. While India’s financial needs are growing, the current regulatory arrangements inhibit growth. This paper discusses the limitations of the present financial regulatory system. The evolving discourse on financial regulatory reforms recognises that the motivation for state intervention in finance must be guided by an understanding of the sources of market failure. This paper summarises the sources of market failure and identifies areas of state intervention in finance. Drawing on this approach, the Government backed Financial Sector Legislative Reforms Commission (FSLRC) prepared a single unified law- the Indian Financial Code (IFC) that seeks to modernise the Indian financial system by transforming the laws, the regulatory architecture and the working of the regulators. This paper discusses the components of the draft Indian Financial Code and describes the state of progress in implementing the IFC framework.

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An Analysis of Transfer Pricing Disputes in India

  • May, 2019
  • Authors Suranjali Tandon and Devendra Damle
  • Details NIPFP Working Paper No. 266
  • Abstract
    The transfer pricing regime in India, since its inception, has been criticised for pronounced and protracted litigation. In this context, this paper evaluates the transfer pricing regime over the span of a decade (2003-04 to 2013-14) using 6731 case orders. It presents the first evidence of the duration of transfer pricing cases, delineated into pre-ITAT and post-ITAT phases, and compares the performance of the two pre-ITAT forums — the CIT(A) and the DRP. Further, the paper presents evidence on issues such as repeated litigation on identical grounds and remand orders that place companies in cycles of litigation. We find that while the DRP, as an alternative dispute resolution mechanism, may have led to a reduction in case duration in the initial years, this benefit may have now peaked leading to a convergence across forums. Further, we find that often grounds for litigation are similar across years, and therefore joint audits for multiple years may be a superior strategy for transfer pricing cases than the current one.
     
    Keywords: Transfer pricing, Income Tax Appellate Tribunal, Dispute Resolution Panel
     
    JEL Classification Codes: K34, K41, M41, M42

     

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State of Public Finance and Fiscal Management in India during 2001-16

  • May, 2019
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 265
  • Abstract
    During 2001-16, State Finances in India have undergone significant changes in both revenue mobilization and controlling expenditures which helped states to contain deficits (revenue as well as fiscal). Introduction of Value Added Tax (VAT) helped states to augment revenue mobilization whereas adoption of Fiscal Responsibility Budget Management (FRBM) Act helped states in prudential fiscal management. During the period, the improvement in union finances was not as good as state finances. There were two significant shocks to Indian public finances during 2001-16 – firstly, introduction of pay revision for the union as well as majority state government employees, in response to recommendations of the Sixth Central Pay Commission and secondly, global financial crisis (2008-09). States experienced revenue shocks mostly through fall in states’ share in central taxes and a mild fall in own tax revenue mobilization during 2008-10. Higher pressure on revenue expenditure due to implementation of the pay commission recommendations (including revision of pensions and payment of arrears) and falling share in central taxes resulted in rise in revenue deficits for states during 2008-10. As a strategy to combat fiscal shocks, different states adopted different measures and some of the measures have inter-temporal implications. The objective of the present paper is to assess the impact of the shocks in Indian public finances and identify challenges for the times to come. Though increasing revenue (‘front loading’) and reducing expenditure (‘back loading’) are common responses to any fiscal shock, understanding inter-temporal implications of those responses with specific to changing structure of inter-governmental fiscal transfers could be an interesting exercise. 
     
    Key Words:  Indian Public Finance, Indian State Finances, Fiscal spillover, Fiscal Management, Revenue mobilization, inter-governmental fiscal relationship, Revenue Deficit, Fiscal Deficit   
     
    JEL Classification Codes: H20, H12, H71, H77
     
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Living under Fiscal Rules: Fiscal Management Response and Resource Allocation Choices for State of Odisha

  • May, 2019
  • Authors Pratap Ranjan Jena
  • Details NIPFP Working Paper No. 264
  • Abstract
    The paper assesses the remarkable success story of State of Odisha in making fiscal correction after adopting the fiscal rules and the policy responses.  The degree of correction was one of the highest among the Indian States.  The tradeoff between fiscal restraint and the development priorities assumes significance as a relatively economically weak State like Odisha maintained a very low-deficit regime by limiting the public spending for a long time. The paper highlights that while fiscal discipline improves the ability of the Government to prioritize among policy choices and improve operational management, strict imposition of self-restraint and large adjustments may lead to distortions. After a decade of controlled fiscal management, as the State has started opening up by expanding the public spending, the shrinking fiscal space, slow growth of internal revenue, and high dependence on Central funds present new challenges. The paper examines the institutional reforms in this context to address emerging fiscal architecture. 
     
    Keywords: Sub-national fiscal policy, fiscal federal system, Fiscal rules, Budgeting system, Medium term perspective
     
    JEL Classification Codes: H61, H72, H77, E61
     
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How much equity capital should a central bank hold?

  • Apr, 2019
  • Authors Ila Patnaik and Radhika Pandey
  • Details NIPFP Working Paper No. 262
  • Abstract
    The mechanism to calculate how much reserves the RBI transfers to the Central Government has been at the forefront of debate amongst experts and policy makers. The present legal framework allows the RBI to choose what proportion of reserves it transfers to the Government. As a consequence, it has built up reserves that are higher than most other central banks hold. This paper presents the logic for why central banks might hold reserves. Drawing on cross country practices, it presents a discussion of the possible arrangements for transfer of reserves to the Government. Any institutional arrangement to determine a framework for reserves transfer must consider these options.
     
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State Finance Commissions: How successful have they been in Empowering Local Governments?

  • Apr, 2019
  • Authors Manish Gupta and Pinaki Chakraborty
  • Details NIPFP Working Paper No. 263
  • Abstract
    While the Constitution provides for setting up of SFCs at regular intervals, this has not been adhered to by the states. The paper reviews the reports of the latest SFCs of 25 states in India. This involves examining the status of constitution of SFCs, their functioning and the approach adopted by them in carrying out their task and the principles adopted by them in allocating resources to local governments both vertically and horizontally. It also quantifies the devolution recommended by the SFCs in order to get a comparative picture of funds devolved by them across states. It is observed that there is huge variation in the recommended per capita devolution across States. We do not find any relation between the recommended per capita devolution and per capita income of States, but per capita devolution is in general very low across states in India. Is it that the state governments arbitrarily reject the recommendations or are the SFCs themselves to be blamed for non-acceptance of their recommendations? The paper also examines the quality of SFC reports from the point of view of their implementability and finds that at times state governments are constrained to implement these recommendations on the grounds of poor quality of SFC reports.
     
     
    Key Words: Fiscal Decentralisation, Local governments, State Finance Commissions
    JEL Classification Code: H7 
     
     
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Practising Subnational Public Finance in an Emerging Economy: Fiscal Marksmanship in Kerala

  • Apr, 2019
  • Authors Ruzel Shrestha and Lekha Chakraborty
  • Details NIPFP Working Paper No. 261
  • Abstract
    Our paper analyses the subnational public finance practices in one of the States in India –Kerala- and estimate the fiscal marksmanship. Fiscal marksmanship is the analysis of fiscal forecasting errors. Kerala, though well known for its achievements in human development outcomes, is facing fiscal stress within the rule-based fiscal framework and innovating policy tools to achieve a revenue-led fiscal consolidation. We have examined the Budget Estimates, Revised Estimates and Actuals for the macro-fiscal variables from Kerala State Budgets, for the period from 2011-12 to 2016-17 to analyse  deviations between the projections and actual realisations. We found that the magnitude of forecasting errors was significant in case of tax revenue. While partitioning the sources of errors in the budgetary forecasting in Kerala, we observed that the random components of the error were larger than the systematic components for all the macro-fiscal variables, except for grants, own revenue and capital expenditure. This has three macro policy implications. One, the volatility in intergovernmental fiscal transfers can affect the stability of finances at subnational level. Two, the State needs to identify innovative policy tools for Additional Resource Mobilisation (ARM) to maintain the human development achievements. Three, within the rule-based fiscal framework, State has to innovate financing strategies for strengthening growth-inducing capital infrastructure formation. 
     
    Key Words: Fiscal marksmanship, fiscal forecasting errors, fiscal rules. 
    JEL Classification Codes: C32 C53, E62, H50, H60
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Indian Fiscal Federalism at the Crossroads: Some Reflections

  • Apr, 2019
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 260
  • Abstract
    There is a growing recognition that something “fundamental” is happening in Indian fiscal federalism ex-post to the institutional changes like the abolition of the Planning Commission; creation of the NITI Aayog; the Constitutional amendment to introduce GST and the establishment of GST Council; and the historic high tax devolution to the States based on the recommendations of the Fourteenth Finance Commission. Recently the policy makers and experts have raised a few issues, which include (i) to make Finance Commissions “permanent” or (ii) to “abolish” the Finance Commissions by making the tax devolution share constant through Constitutional Amendment, (iii) the need for an institution to redress spatial inequalities, to fill in the vacuum created by abolishing the Planning Commission, and (iv) arguing the case for Article 282 of the Constitution to be circumscribed. The debates are also focused on whether there is a need establish a link between GST Council and Finance Commissions and should India devise a mechanism of transfer which is predominantly based on sharing of grants for equalization of services rather than tax sharing. What could be a plausible framework for debt-deficit dynamics keeping intact the fiscal autonomy of States and to ensure “output gap” reduction and public investment at the subnational level, without creating bad equilibrium was also another matter of concern. These debates attain significance, especially when for the first time ever a group of States came together to question the Terms of Reference (TOR) of the 15th Finance Commission and there is a growing tension in the Centre-State relations in India. 
     
    Keywords: Fiscal federalism, Finance Commission, revenue sharing, fiscal equalization, GST, public debt, fiscal rules
     
    JEL Classification Codes: H77
     

     

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Exploring Low-Carbon Energy Security Path for India: Role of Asia-Pacific Energy Cooperation

  • Apr, 2019
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 259
  • Abstract
    In World Energy Outlook 2018, India's total primary energy demand (TPED) is expected to grow from 898 million tonne of oil equivalent (Mtoe) in 2017 to 1465 Mtoe in 2030. India's growth in TPED during 2017 to 2030 is expected to be the single largest source of global growth in TPED. India's share in world's TPED will go up from 6.4 percent in 2017 to 9.1 percent in 2030. With rising demand for energy, India's contribution in world's energy-related total CO2 emission is expected to go up from 6.7 percent in 2017 to 10.6 percent in 2030. Though India's per capita CO2 emission is one-third of world’s average, the rising contribution in CO2 emission is mostly attributable to high emission intensity of India’s GDP. It is expected that India will be the single largest driver of global growth in total energy-related CO2 emission during 2017-2030. Achieving energy security is important for India to sustain high economic growth and socio-economic wellbeing of Indian populace. However, it would be important for India to reduce emission intensity of GDP and explore low carbon energy security path through inter-regional energy cooperation. 
     
    Coal is the single largest source of India's total primary energy demand and it is expected to be so in 2030. Coal is predominantly used in India's power sector and it contributes 71 percent in India's total energy-related CO2 emission. Reducing dependence on coal in power sector could be the foremost priority in achieving low carbon energy security for India. Power sector contributes 53 percent of India's total energy-related CO2 emission in 2017 and it is expected to fall to 46 percent in 2030. India needs to explore options for electricity trade rather than high value primary energy sources for power generation to reduce dependence on energy imports as well as greening up the power sector. Being net importer, 58 percent of India’s trade imbalance is attributed to import of energy sources. Given the vast potential exists in non-hydro renewable power generation in India, it would be important for India to explore electricity trade in the Asia-Pacific region by mobilizing finance to invest in inter-regional electricity generation and transmission infrastructure.
     
    India’s objectives to achieve energy security and environment sustainability need to be integrated. This paper explores challenges in achieving India’s low-carbon energy security and possible scope for Asia-Pacific energy cooperation thereof. 
     
    Key Words: Energy security, CO2 emission, inter-regional energy cooperation, India.
     
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How to Modernise the Working of Courts and Tribunals in India

  • Mar, 2019
  • Authors Pratik Datta, Mehtab Hans, Mayank Mishra, Ila Patnaik, Prasanth Regy, Shubho Roy, Sanhita Sapatnekar, Ajay Shah, Ashok Pal Singh, Somasekhar Sundaresan
  • Details NIPFP Working Paper No. 258
  • Abstract
    Indian courts are clogged with large backlogs. Part of the reason for the problem is that cases take a very long time to move through the courts.The slow progress of court cases is harmful for the Indian democracy and economy. We suggest that part of the reason for the backlog is the poor administrative support available to judges. Following several Supreme Court judgements, we propose that a separate organisation (The Indian Courts and Tribunals Services, ICTS) be set up to facilitate administrative functions. Care needs to be taken while designing ICTS to ensure the protection of judicial independence. The functions of ICTS would also involve a re-engineering of the business processes of the courts to take full advantage of modern technology.
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Impact of Changes in Fiscal Federalism and Fourteenth Finance Commission Recommendations: Scenarios on States Autonomy and Social Sector Priorities

  • Mar, 2019
  • Authors Amarnath H K and Alka Singh
  • Details NIPFP Working Paper No. 257
  • Abstract

    This paper compares the additional gains from higher tax devolution in the post 14th FC period, with the additional burden due to the withdrawal of certain central schemes and the changes in the sharing pattern of major Centrally Sponsored Schemes calling for greater contribution from the states. Average burden of the general category states due to CSS is 0.69 percent of combined GSDP of these states, whereas gains in tax devolution is 0.71 percent of combined GSDP of these states for the year 2015-16. In the following year, the difference is even less. This paper questions the rhetoric of greater autonomy for the states, which claims that the states have got additional money in the form of tax devolution and are therefore free to decide the priorities.  The paper also discusses declining priority for social sector and child budgeting in the post 14th FC years, 2015-16 and 2016-17.  

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The Political Economy of Gender Budgeting: Empirical Evidence from India

  • Mar, 2019
  • Authors Lekha Chakraborty, Veena Nayyar and Komal Jain
  • Details NIPFP working paper No. 256
  • Abstract
    Gender budgeting is a public policy innovation to transform the gender commit-ments into budgetary commitments. The political economy process of gender budget-ing in India has encompassed four distinct phases - innovative knowledge networking, building institutional structures, reinforcing state capacity and strengthening the ac-countability mechanisms. Against these policy processes, we have estimated the sec-tor-wise quantum of gender budgeting in India emphasising the statistical invisibility of care economy. The State-wise equally distributed equavalent (Xede) estimates of gen-der development showed that Kerala tops the scale 0-1 scoring 0.72. Though the link between gender budgeting and these Xede scores is beyond the scope of the paper, the fiscal marksmanship of gender budgeting showed a mixed scenario across sectors. The fiscal marksmanship of gender budgeting showed an upward bias in the errors in the projections relate to education, social justice empowerment and health, and down-ward bias in agriculture, petroleum and natural gas. These deviations between BE and RE in gender budgeting has significant policy implications for better state capacity and governance.
    JEL Classification Numbers: H00, H77, I3, J16
    Keywords: Gender Budgeting, Fiscal Marksmanship, Gender Inequality, Inter-gov-ernmental Fiscal Transfers, Care Economy, Political Economy
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Inter-Governmental Fiscal Transfers in the Presence of Revenue Uncertainty: The Case of Goods and Services Tax (GST) in India

  • Feb, 2019
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 255
  • Abstract

    A comprehensive multistage Value Added Tax (VAT) system, viz., Goods and Services Tax (GST), is introduced in India since 1 July 2017. GST encompasses various taxes from Union and State indirect tax bases and it is a dual VAT system with concurrent taxation power to Union and State governments. It was envisaged that removal cascading of taxes and enshrining destination based consumption tax system under GST will encourage investment and improve ease-of-doing business in India. Though it is not right time to comment on success or failure of Indian GST system unless the tax system stabilizes, so far revenue mobilization from GST is not encouraging. The shortfall in GST collection has been acknowledged in the ‘Medium Term Fiscal Policy cum Fiscal Policy Strategy Statement’ of the Union Budget 2019-20. The genesis of revenue shortfall may be design and structural in nature and/or compliance and tax administration related. However, the uncertainty surrounding GST revenue collection is an issue which needs an in-depth assessment for fiscal management of Union and State governments. The impact of revenue uncertainty will not be restricted to Union finances alone; it will spill over to state finances through inter-governmental fiscal transfers. Therefore, depending on seriousness of the uncertainties associated with GST revenue collection, devising an inter-governmental fiscal transfer framework may be a challenging task for the Fifteenth Finance Commission. Given the information available in the public domain, this paper attempts to explore possible causes of revenue shortfall and assess possible impacts of revenue shortfall on Union and State finances.

     

    Key Words: Revenue Uncertainty, Inter-Governmental Fiscal Transfers, Goods and Services Tax (GST), State Finances, India.

     

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Private Hospitals in Health Insurance Network in India: A Reflection for Implementation of Ayushman Bharat

  • Feb, 2019
  • Authors Mita Choudhury and Pritam Datta
  • Details NIPFP Working Paper No. 254
  • Abstract
    Private hospitals are expected to play a key role in the implementation of government sponsored health insurance schemes (GSHIS) in India. This paper examines the availability and spread of private hospitals in the country to provide insights on the potential access to insured health services in GSHIS schemes. It uses three sets of information to analyse the issue: private hospitals empanelled by insurance companies, the 6th Economic Census, and private hospitals empanelled in GSHIS schemes in four States. The analysis suggests that, in low-income States of the country, empanelment of private hospitals by insurance companies is low and concentrated in a few pockets. This pattern closely corresponds to the pattern of availability of private hospitals indicated in the 6th Economic Census. In Andhra Pradesh, Telangana, Tamil Nadu and Karnataka, the four States which have some of the largest GSHIS schemes in the country, there is a strong correspondence between private hospitals empanelled by insurance companies and private hospitals empanelled in GSHIS schemes. In these States, the extent of empanelment of private hospitals in GSHIS schemes is also substantially smaller than the empanelment of private hospitals by insurance companies. This may indicate differences in entry conditions or low willingness of private hospitals to participate in GSHIS schemes.
     
    Key Words: Private health providers, Private hospitals, Ayushman Bharat, Pradhan Mantri Jan Arogya Yojana, Access to health care, India 
     
    JEL Classification Codes: I11, I14
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Public Expenditure on Old-Age Income Support in India: Largesse for a Few, Illusory for Most

  • Feb, 2019
  • Authors Mukesh Kumar Anand and Rahul Chakraborty
  • Details NIPFP Working Paper No. 253
  • Abstract
    Policy enunciation often remains hostage to a program-centric approach for planning and reform in developing countries. Old-age income support in India faces such a policy predicament. Extant studies deciphering related public expenditure thus carry limitations on (a) system expanse, (b) corresponding data collation, and therefore (c) depth of resource conscription. Benchmarking to the five-pillar architecture advanced by World Bank for old-age income support system, this paper traces (a) public expenditure, (b) average benefits, (c) workers included, and (d) elderly covered, under each pillar in India.
     
    The constituents for respective pillars in India are heuristically identified and data on expenditure by federal and sub-national governments are collated or estimated using government finance accounts and annual reports. Workers and elderly covered under each pillar are estimated using data drawn from diverse sources on identifiable groups.
     
    The study finds that, the extant system in India presents a larger and rising burden on sub-national governments, with implications for macroeconomic balance. In 2013-4 the elderly comprised 8.6 percent of the population and old-age income support system entailed 11.5 percent of public expenditure of combined federal and sub-national governments. Less than two percent of it constituted co-contributions in the nature of capital expenditure. Only 43 percent of 118.36 million elderly drew benefit from public expenditure and more than 85 percent workers remain excluded from the system. Including those drawing social pension, 70 percent of all beneficiaries collect less than the rural poverty line drawn at INR 11016 per annum.
     
    The paper suggests (a) capping defined-benefit for exceptionally privileged, (b) reform of regulatory paradigm to harmonize contributory schemes, dissolve exclusive (section, sector, or region-based) approach and adopt inclusive principle to widen coverage, (c) unrequited sustained contribution by government for low-income earners and underprivileged, and (d) assimilation of information technology enablers for effective and efficient targeting of social pension. Pension policy reform anywhere, often faces arduous implementation, and extant processes in India merely tinker with inception of an essentially long gestation procedure.
     
    Keywords: Pension in Developing Countries; Public Expenditure; Social Security System in India
     
    JEL Classification Codes: H550, J140
     
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Towards India’s New Fiscal Federalism

  • Jan, 2019
  • Authors Vijay Kelkar
  • Details NIPFP Working Paper No. 252
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The way forward for personal insolvency in the Indian Insolvency and Bankruptcy Code

  • Jan, 2019
  • Authors Renuka Sane
  • Details NIPFP Working Paper No. 251
  • Abstract
    In 2016, the Indian Parliament passed the Insolvency and Bankruptcy Code (IBC). The Government has chosen to notify only the part on corporate insolvency. It is expected that the part on personal insolvency will be notified for individuals with business debt and personal guarantors. In this context, this paper describes the Indian credit market and presents an argument for the need for personal insolvency law. It provides a brief overview of the provisions on personal insolvency in the IBC. It makes suggestions on questions of policy that need to be addressed before the law can be meaningfully implemented as the success of the IBC depends on the design of the subordinate legislation as well as the evolution of the institutional infrastructure.
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How Does Public Debt affect the Indian Macro-economy? A Structural VAR Approach

  • Jan, 2019
  • Authors Ranjan Kumar Mohanty and Sidheswar Panda
  • Details NIPFP Working Paper No. 250
  • Abstract
    This study investigates the macroeconomic effects of public debt in India using a Structural Vector Autoregression (SVAR) framework for the period from 1980 to 2017. The objective of this study is to examine the impact of several types of public debt on economic growth, investment, interest rate and inflation in India. The results of the Impulse response functions show that public debt has an adverse impact on economic growth, a positive impact on long-term interest rate and a mixed response (both negative and positive) on investment and inflation in India. It is also found that the domestic debt has a more adverse impact on the economy than external debt in India. The estimated variance de-composition analysis shows that much of the variations among selected macro variables are explained by public debt and growth in India. The study suggests that public debt, especially the domestic debt should be controlled and used in a more productive manner in order to have a favourable impact on the economy.
     
    Keywords: Public Debt; Internal Debt; External Debt; Economic Growth; Structural VAR Approach; India.
    JEL Classification Codes: H63, O40, C40.
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What do we know about changing economic activity of firms?

  • Jan, 2019
  • Authors Radhika Pandey, Amey Sapre, Pramod Sinha
  • Details NIPFP Working Paper No. 249
  • Abstract
    Identification of primary economic activity of firms is a prerequisite for compiling several macro aggregates. In this paper we take a statistical approach to understand the extent of changes in primary economic activity of firms over time and across different industries. We use the history of economic activity of over 46000 firms spread over 25 years from CMIE Prowess to identify the number of times firms change the nature of their business. Using the count of changes, we estimate Poisson and Negative Binomial regression models to gain predictability over changing economic activity across industry groups. We show that a Poisson model accurately characterizes the distribution of count of changes across industries and that firms with a long history are more likely to have changed their primary economic activity over the years. Findings show that classification can be a crucial problem in a large dataset like the MCA21 and can even lead to distortions in value addition estimates at the industry level.
     
    Keywords: Economic Activity, Manufacturing, India, Poisson Distribution
    JEL Classification Codes: E00, E01
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Examining the trade-off between price and financial stability in India

  • Jan, 2019
  • Authors Ila Patnaik, Shalini Mittal, Radhika Pandey
  • Details NIPFP Working Paper No. 248
  • Abstract
    In recent years, many emerging economies including India have adopted inflation targeting framework. Post the global fnancial crisis, there is a growing debate on whether monetary policy should target financial stability. Using India as a case study, we present an empirical approach to assess whether monetary policy can target financial stability. This is done by examining the trade-off between price and financial stability for India. Using correlation between price and financial cycles, we find that a trade-off exists between price and financial stability. Our finding is robust to a series of robustness checks. Our study has implications for the conduct of monetary policy in emerging economies. Presence of a trade-off may constrain the ability of a central bank in emerging economies to target financial stability with monetary policy instrument.
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Value destruction and wealth transfer under the Insolvency and Bankruptcy Code, 2016

  • Dec, 2018
  • Authors Pratik Datta
  • Details NIPFP Working Paper No. 247
  • Abstract
    India experienced a major structural change with the enactment of the Insolvency and Bankruptcy Code, 2016. Since then, India's ranking under the Insolvency head in the World Bank Group's Doing Business report has sharply risen from 136 to 103. India was also awarded the Global Restructuring Review (GRR) Award for the Most Improved Jurisdiction in restructuring and insolvency regime. Yet, the Insolvency and Bankruptcy Code, 2016 has also raised two important concerns - the value destruction problem and wealth transfer problem. This article applies theoretical concepts from the law and economics literature on insolvency to identify the sources of these two problems in insolvency law. It then applies these theoretical concepts to the Insolvency and Bankruptcy Code, 2016 to identify two potential sources of the value destruction problem and four potential sources of the wealth transfer problem in the law. Indian policymakers need to revisit some of the fundamental legislative design choices embedded within the Insolvency and Bankruptcy Code, 2016 to successfully address these very sources of the value destruction and wealth transfer problems.
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Disclosures in privacy policies: Does “notice and consent” work?

  • Dec, 2018
  • Authors Rishab Bailey, Smriti Parsheera, Faiza Rahman, Renuka Sane
  • Details NIPFP Working Paper No. 246
  • Abstract
    This paper evaluates the quality of privacy policies of five popular online services in India from the perspective of access and readability. We ask - do the policies have specific, unambiguous and clear provisions that lend themselves to easy comprehension? We also conduct a survey among college students to evaluate how much do users typically understand of what they are signing up for. We find that the policies studied are poorly drafted, and often seem to serve as check-the-box compliance of expected privacy disclosures. Survey respondents do not score very highly on the privacy policy quiz. The respondents fared the worst on policies that had the most unspecified terms, and on policies that were long. Respondents were also unable to understand terms such as "third-party", "affiliate" and "business-partner". The results suggest that for consent to work, the information offered to individuals has to be better drafted and designed.
     
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Analyzing the Dynamic Relationship between Physical Infrastructure, Financial Development and Economic Growth in India

  • Nov, 2018
  • Authors Ranjan Kumar Mohanty and N. R. Bhanumurthy
  • Details NIPFP Working Paper No. 245
  • Abstract
    The paper investigates dynamic relationship between physical infrastructure, financial development and economic growth in the case of India, using an Autoregressive Distributed Lag (ARDL) and Toda-Yamamoto (T-Y) causality approach for the period 1980 to 2016. Physical infrastructure index and financial development index are constructed using Principal Component Analysis method. Empirical results suggest that physical infrastructure has a positive effect on economic growth both in the long run and short run, whereas financial development, though significant, has a weak impact on economic growth. The causality test supports a bi-directional causal relationship between infrastructure development and economic growth, while it finds a unidirectional causation running from economic growth to financial development. It also finds that gross investment, employment have a positive, and inflation has an adverse effect on economic growth. As India is aiming for higher growth for a sustained period, our results suggest that there is a need for Government intervention in expanding the physical infrastructure and this, in turn, could lead to growth of the financial sector in the country.
     
    Keywords: Infrastructure Index, Financial Development Index, Economic Growth, ARDL Approach, India
    JEL Classification codes: H40, C43, O40, C32
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UDAY Power Debt in Retrospect and Prospects: Analyzing the Efficiency Parameters

  • Nov, 2018
  • Authors Amandeep Kaur and Lekha Chakraborty
  • Details NIPFP Working Paper No. 244
  • Abstract
    The Government of India launched the Ujwal DISCOM Assurance Yojana (UDAY), in November 2015, with an objective of “Power for All”. Under the UDAY scheme, selected States agreed to convert 75 per cent of the DISCOM’s (State Power Distribution Companies) power debt into State government non-SLR bonds, priced at not more than 75 basis points above the prevailing cut-off yield rate of government security of 10-year maturity. At aggregate level, so far, around 86 per cent of UDAY bonds have been issued - Rs. 2.32 lakh crores out of Rs. 2.69 lakh crores - across all UDAY States/UTs. Our estimates reveal that the financial and operational efficiency parameters envisaged in UDAY tripartite MoUs – between DISCOMs, the State Governments and the Ministry of Power, Government of India – have not been met by many States. Using UDAY portal data, we find that the average AT&C (Aggregate Technical and Commercial) losses that should have been 15% for all the participating states by 2018-19, presently, on average, stand at 25.41%. Yet another financial indicator, ACS-ARR gap (the gap between Average Cost and Average Revenue) has also widened for many UDAY participating states. The power tariff revisions have also not been implemented in the States - due to political economy reasons - and the operational parameters in our analysis indicate widening inefficiencies across States in power infrastructure.
     
    Key words: Power infrastructure, Power Debt, Bonds, Financial efficiency
    JEL Classification codes: H00, I3, J16
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Exporting and firm performance: Evidence from India

  • Nov, 2018
  • Authors Apoorva Gupta, Ila Patnaik and Ajay Shah
  • Details NIPFP Working Paper No. 243
  • Abstract
    The positive correlation between firm productivity and export status is well established. This correlation can arise from multiple alternative casual models. We investigate these relationships, harnessing the transition of several firms from serving the domestic market to exporting, in a dataset of Indian firms from 1989 to 2015. Each firm which made the transition is matched against a control which did not. The transitions take place across many years, thus permitting a matched event study in firm outcomes. We find there is self-selection of more productive firms into exporting. Firms that make the transition become bigger, but there is little evidence of learning by exporting, of improvements in productivity right after exporting commences. However, there is evidence of improvement in productivity of export starters a couple of years before they begin to export.
     
    JEL Classification Codes: F43, L1, D24
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Data localisation in India: Questioning the means and ends

  • Oct, 2018
  • Authors Rishab Bailey and Smriti Parsheera
  • Details NIPFP Working Paper No. 242
  • Abstract
    The subject of data localisation has garnered signi ficant attention in recent policy debates in India. This paper classi fies the arguments around data localisation into three broad categories - the civil liberties perspective; the government functions perspective and the economic perspective. We examine the likely costs and bene fits under each of these heads and come to the conclusion that it would be premature to adopt any sweeping localisation norms in India. At the same time, India must not will away its ability to adopt such measures in future by agreeing to sweeping ‘free flow of data’ provisions in trade agreements. The identi fication of cases where narrowly-tailored localisation requirements might be an appropriate response should be done through a transparent and consultative process. Where an assessment of the overall costs and bene fits justi fies a case for localisation, it should be adopted in its least intrusive form.
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Health and Disaster Risk Management in India

  • Oct, 2018
  • Authors Supriya Krishnan and Ila Patnaik
  • Details NIPFP Working Paper No. 241
  • Abstract
    India has been rapidly urbanizing. Its state of health, well-being, and infrastructure capacity are in a period of transformation. Through the perspective of a rapidly urbanizing nation, this paper presents an overview of India’s health capacity in managing disaster risks. It looks at demographic, epidemiological and developmental transitions in India and how that impacts decision making for the health sector. It studies relevant experiences and the current status of healthcare provisioning to identify issues aiding and ailing the achievement of health outcomes in times of disasters and otherwise.
     
    Keywords: disaster resilience, public heath, disaster risk reduction, hospital safety, developmental risk.
     
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(Revised) Impact of Intergovernmental Fiscal Transfers on Gender Equality in India: An Empirical Analysis

  • Oct, 2018
  • Authors Janet G. Stotsky, Lekha Chakraborty, and Piyush Gandhi
  • Details NIPFP Working Paper No. 240
  • Abstract
    We analyze the effect of fiscal transfers from the federal to state governments in India—both conditional and unconditional transfers—on gender parity in enrollment at the primary and secondary levels in education, using panel data econometric models. In contrast to previous studies, examining Indian states, we employ a more disaggregate specification for transfers and grants, which is important given the size of this spending in state budgets. Our results provide evidence to suggest that unconditional fiscal transfers have a positive effect on gender equality outcomes but there is little evidence to suggest conditional transfers, even those falling within an educational grants program, have had a strong influence on outcomes. Real income is shown to have some effect but again, not as strong and consistent as one might have expected. Gender budgeting also surprisingly shows a mixed effect, both positive and negative effects and the precise mechanism through which these programs may be working to influence educational parity deserves greater attention at a finer level than is possible with our aggregate data. For policymakers, the results suggest integrating gender criteria in intergovernmental fiscal transfers and grants would strengthen the positive effects on gender equality. Income gains are not sufficient to generate equality of enrollment. Gender budgeting efforts have been insufficient in this critical area of policy. These are important conclusions of which the 15th Finance Commission of India can take note. Further investigation with more detailed fiscal and demographic data and at a finer level of disaggregation of transfer programs is called for.
     
    Key Words: intergovernmental fiscal transfers (IGFT), gender equality, fiscal federalism, gender budgeting, panel data
     
    JEL Classification Codes: H00, I3, J16
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The Development of Education and Health Services in Asia and the Role of the State

  • Oct, 2018
  • Authors Sudipto Mundle
  • Details NIPFP Working Paper No. 239
  • Abstract
    This paper analyses the dramatic spread of education and healthcare in Asia and also the large variations in that spread across and within countries over fifty years. Apart from differences in initial conditions and income levels, the nature of the State has also been an important determinant of these variations. This is because social development has typically been led by the State. But in most countries, public resource constraints and the growing dependence on private provision and private spending have generated a pattern of nested disparities in the access to education and healthcare between rich and poor regions, between rural and urban areas within regions, and between rich and poor households within these areas. However, as the better-off regions, areas, and households approach the upper limits of achievable education and health standards, a process of convergence is also underway as those left behind begin to catch up.
     
    Keywords: Asia, comparative studies, disparity, education, health, institutions, State
     
    JEL Classification Codes: B25, B52, H51, H52, I13, I14, I18, I21, I24, I28, O43, O53, P16, P26, P48, P52
     
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Forecasting India’s Economic Growth: A Time-Varying Parameter Regression Approach

  • Sep, 2018
  • Authors Rudrani Bhattacharya, Parma Chakravartti and Sudipto Mundle
  • Details NIPFP Working Paper No. 238
  • Abstract
    Forecasting GDP growth is essential for effective and timely implementation of macroeconomic policies. This paper uses a Principal Component augmented Time Varying Parameter Regression (TVPR) approach to forecast real aggregate and sectoral growth rates for India. We estimate the model using a mix of fiscal, monetary, trade and production side-specific variables. To assess the importance of different growth drivers, three variants of the model are used. In ‘Demand-side’ model, the set of variables exclude production-specific indicators, while in the ‘Supply-side’ model, information is extracted only from the latter set. The ‘Combined’ model consists of both sets of variables. We find that TVPR model consistently outperforms constant parameter factor-augmented regression model and Dynamic Factor Model in terms of forecasting performance for all the three specifications. Based on the TVPR model, we find that demand side variant minimises the error forecast for total GDP and the industrial sector GDP, while the supply side variant minimises the error forecast for services sector GDP. We also find that forecast error is minimised using both the supply side variant and the combined variant for agriculture sector GDP.
     
    Keywords: Real GDP growth, Forecasting, Time Varying, Parameter Regression Model, Dynamic Factor Model, India
     
    JEL Classification Codes: C32, C5, O4
     

     

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Building State capacity for regulation in India

  • Aug, 2018
  • Authors Shubho Roy, Ajay Shah, B.N. Srikrishna and Somasekhar Sundaresan
  • Details NIPFP Working Paper No. 237
  • Abstract
    The economic reforms in India envision shifting from regulation of markets being run by departments of government, to oversight by specialised regulators. While many regulators have been created in recent decades, the outcomes have often been disappointing. In this paper, we analyse the features of organisation design that cater to high performance regulators. We propose sound designs for: clarity of purpose, the board, the legislative process, the executive process, the judicial process, and reporting. We argue that when these features are mandated by legislation that creates the regulator, feedback loops will be established through which State capacity will be gradually obtained.
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Diagnosing and overcoming sustained food price volatility: Enabling a National Market for Food

  • Jul, 2018
  • Authors Anirudh Burman, Ila Patnaik, Shubho Roy and Ajay Shah
  • Details NIPFP Working Paper No. 236
  • Abstract

    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.

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Tax challenges arising from digitalisation

  • Jul, 2018
  • Authors Suranjali Tandon
  • Details NIPFP Working Paper No. 235
  • Abstract

    As MNCs increasingly digitalise their operations, taxing their incomes is proving a challenge. Primarily since economic activity is no longer pre-conditioned on physical presence. As a result the existing international tax rules are proving insufficient. In response to this challenge, policy experts around the world are deliberating the basis for taxing profits arising from digitalised operations. The alternative measures being considered include withholding tax, equalisation levy and the test for significant economic presence. Each of these measures is being critically assessed and a more uniform approach has not yet been adopted owing to concerns that there may be reallocation of taxing rights. This paper presents evidence of base erosion and profit shifting by digitalised businesses. Using such evidence the paper discusses the adequacy and utility of the suggested tax measures and conjectures on the tax consequences for source countries. The paper finds that the test for significant economic presence may be a useful measure however its wider acceptance hinges on consensus.

    https://www.ibfd.org/IBFD-Products/Journal-Articles/Asia-Pacific-Tax-Bulletin/collections/aptb/html/aptb_2018_06_in_1.html

     

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Has Fiscal Rule changed the Fiscal Marksmanship of Union Government?: Anatomy of Budgetary Forecast Errors in India

  • Jun, 2018
  • Authors Lekha Chakraborty and Darshy Sinha
  • Details NIPFP Working Paper No. 234
  • Abstract

    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.

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Financial Globalisation and Economic Growth in South Asia

  • Jun, 2018
  • Authors N R Bhanumurthy and Lokendra Kumawat
  • Details NIPFP Working Paper 233
  • Abstract
    The paper examines the relationship between financial globalization and growth. While the existing literature suggests divergent conclusions and mostly in the case of developed countries, there is a dearth of such studies in the case of developing countries, and South Asia is not an exception. Here, an attempt has been made to study the relationship between financial globalization and growth in seven South Asian countries namely Bhutan, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka.  
     
    Following the framework suggested by Bekaert et al. (2005) and with the help of Panel VAR and Panel causality (in GMM framework) models, the study concludes that the causation from financial globalization to growth in the region appears to be weak. Rather there appears a reverse causation running from growth to financial globalization. This suggests that it is the domestic macroeconomic policies (fiscal prudence, strong domestic financial sector and better growth policies) that act as pull factors for foreign capital. At the individual country level, the results are found to be divergent. The study finds that output growth appears to cause financial globalization in countries such as India, Pakistan, Maldives, and Nepal. However, in countries such as Sri Lanka and Bhutan, it clearly suggests that foreign capital has a significant positive impact on output growth. In Bangladesh, the impact seems to be through indirect channel, where foreign capital seems to have a disciplining impact on domestic financial markets, which in turn causes output growth. Similar indirect channel is found in the case of Sri Lanka and this is in addition to the direct channel of financial globalization causing growth.  
     
    Keywords: Financial Globalisation, Economic Growth, Capital Flows, South Asia, Panel VAR
    JEL Classification codes: C33, F21, F36, F65
     
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Federalism, Fiscal Asymmetries and Economic Convergence: Evidence from Indian States

  • May, 2018
  • Authors Lekha Chakraborty and Pinaki Chakraborty
  • Details NIPFP Working Paper No. 232
  • Abstract
    This paper tests economic convergence across States in India by incorporating federal fiscal asymmetries and differentials in gross fixed capital formation at the state level. Using dynamic panel models, it is observed that there is no unconditional convergence of economic growth. Controlling for state-wise asymmetries in fiscal policy variables, financial parameters, capital formation and human development outcomes using Arenallo and Bond (1991) panel data methodology, no strong evidence for conditional convergence is observed. It is observed from the GMM estimations that public capital spending has positive and significant relationship with economic growth. It is also observed that the quality of human capital formation is a pre-requisite for economic growth, both for club and (aggregate) conditional convergence. 
     
    Key words: economic convergence, asymmetric federalism, dynamic panel estimation, GMM, fiscal policy
     
    JEL Classification codes: C33, E62, H77, R11, R58
     
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The rise of government-funded health insurance in India

  • May, 2018
  • Authors Ila Patnaik, Shubho Roy and Ajay Shah
  • Details NIPFP Working Paper No. 231
  • Abstract
    India has experienced a remarkable proliferation of 48 Government Funded Health Insurance Schemes (GFHIS) from 1997 to 2018. We place the rise of this policy pathway in historical perspective. Under colonial rule, there was considerable importance placed upon public health as a local public good. After independence, the Bhore Committee build a paradigm of public sector health care, and the public health system degraded. In this environment, the political process faced a high disease burden coupled with a weak public health care system. This pressure led to the adoption of GFHIS as a convenient way forward. We identify four areas of concern in this new paradigm of Indian health policy: inefficient lack of focus upon public health, regulatory problems with private health care, weak regulation of health insurance companies, and fiscal risk.
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Regulating infrastructure development in India

  • May, 2018
  • Authors Sanhita Sapatnekar, Ila Patnaik and Kamal Kishore
  • Details NIPFP Working Paper No. 230
  • Abstract
    India has been rapidly urbanising. Much of this has been unplanned, with regulation left to catch up to what has already been implemented. This leaves room for improving the legal framework in terms of what role is played by each level of government, as well as the process for setting standards for each type of infrastructure. Regulation of the professionals involved (including town planners and engineers) is missing, resulting in implementation issues. Further, this regulatory framework is still evolving in India. There are systemic issues to consider, such as the level of prescription a standard should have, identifying critical infrastructure, and whether to retrofit existing infrastructure. This paper reviews the existing framework for infrastructure development and the associated standards in India, and identifies areas for concern. Rather than deeply anlaysing any one standard, this paper analyses the ecosystem for standard setting in India's infrastructure development from a risk perspective.
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Utilisation, Fund Flows and Public Financial Management under the National Health Mission

  • May, 2018
  • Authors Mita Choudhury and Ranjan Kumar Mohanty
  • Details NIPFP Working Paper No. 227
  • Abstract
    This study provides insights on how institutional architecture for public fund flows affects budget execution. Using the case of the National Health Mission (NHM) in India, it highlights how the rules and procedures that govern release of public funds affect utilisation of budgeted resources. It analyses the utilisation of NHM funds in 29 States, and documents the processes for fund releases from State treasuries to implementing agencies in Bihar, Maharashtra and Odisha. The study finds that on average, only about 55 per cent of funds allocated for NHM were utilised in 2015-16 and 2016-17. In Bihar and Maharashtra, this was partly due to significant delays in release of funds from State treasuries to implementing agencies. The delays were a result of complex administrative procedures associated with the release of NHM funds from State treasuries. The existence of implementing agencies outside the States’ administrative setup, and the rigid fragmented financial design of NHM has contributed to the complicated architecture of release processes.
     
    Key Words: Public Fund Flow, Fund Utilisation, Public Financial Management, Budget Execution, National Health Mission
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Fair play in Indian Health Insurance

  • May, 2018
  • Authors Shefali Malhotra, Ila Patnaik, Shubho Roy and Ajay Shah
  • Details NIPFP Working Paper No. 228
  • Abstract
    In recent years there has been an increased role for health insurance in Indian health care, through government funded health insurance programs and privately purchased health insurance. Our analysis of the claims ratio and the complaints rate in the health insurance industry, suggests that there are important difficulties with the working of health insurance. The lack of fair play in this industry is derived from deficiencies in regulations, weak enforcement of regulations and faulty institutional design of consumer redress. The solutions lie in laws and regulatory processes for consumer protection. Examination of health policy and financial policy, together would formulate a strategy for change.
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Stock Market Trading in the Aftermath of an Accounting Scandal

  • Apr, 2018
  • Authors Renuka Sane
  • Details NIPFP Working Paper No. 198
  • Abstract
    In this paper, we study the impact on investor behaviour of fraud revelation. We ask if investors with direct exposure to stock market fraud (treated investors) are more likely to decrease their participation in the stock market than investors with no direct exposure to fraud (control investors)? Using daily investor account holdings data from the National Stock Depository Limited (NSDL), the largest depository in India, we find that treated investors cash out almost 10.6 percentage points of their overall portfolio relative to control investors post the crisis. The cashing out is largely restricted to the bad stock. Over the period of a month, there is no difference in the trading behaviour of the treated and control investors. These results are contrary to those found in mature economies. [An earlier version of this paper was published on June 30, 2017.]
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The Economics of Releasing the V-band and E-band Spectrum in India

  • Apr, 2018
  • Authors Suyash Rai, Dhiraj Muttreja, Sudipto Banerjee and Mayank Mishra
  • Details NIPFP Working Paper No. 226
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Assessing Public Expenditure Efficiency in Indian States

  • Mar, 2018
  • Authors Ranjan Kumar Mohanty & N.R. Bhanumurthy
  • Details NIPFP Working Paper No. 225
  • Abstract
    In recent times, the issue of public expenditure efficiency has drawn the attention of both policymakers and researchers globally. Even in India, with the increased demands for Outcomebased Budgeting, the assessment of public expenditure efficiency becomes much more crucial. Towards this direction, by using outlays-outcome framework, the paper attempts to measure the efficiency of government expenditures on Social Sector, especially health and education, among the Indian States using various DEA approaches. Further, the paper also attempts to understand what drives the public expenditure efficiency among the States. For this, it looks at the role of economic growth as well as quality of governance. The results of input-oriented and outputoriented DEA approach finds a large variation in the efficiency of public spending as well as scope for resource saving among Indian States. The results suggest that States are spending their resources more efficiently on education than on health and overall social sector spending. Further, it also finds that both quality of governance and economic growth affects the efficiency of education, health, and social sector with governance to have larger effect compared to growth. Overall, the study suggests that focus on good governance could yield better outcomes from public spending.
     
    Keywords: Public Expenditure, Education, Health, Data Envelopment Analysis, India.
    JEL codes: H51, H52, I18, I21, C14, O53
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Fiscal Policy Effectiveness and Inequality: Efficacy of Gender Budgeting in Asia Pacific

  • Mar, 2018
  • Authors Lekha Chakraborty, Marian Ingrams, Yadawendra Singh
  • Details NIPFP Working Paper No. 224
  • Abstract
    Gender budgeting is a fiscal approach that seeks to use a country’s national and/or local budget(s) to reduce inequality and promote economic growth and equitable development. While literature has explored the connection between reducing gender inequality and achieving growth and equitable development, more empirical analysis is needed to determine whether gender budgeting really curbs gender inequality. Our study follows the methodology of Stotsky and Zaman (2016) to investigate across Asia Pacific countries the impact of gender budgeting on promoting gender equality, and also increasing fiscal spending on health and education. The study classifies Asia Pacific countries as ‘gender budgeting’ or ‘non-gender budgeting’ according to whether they have formalized gender budgeting initiatives in laws and/or budget call circulars. To measure the effect of gender budgeting on reducing inequality, we measure the correlation between gender budgeting and the Gender Development Index (GDI) and Gender Inequality Index (GII) scores in each country. The data for our gender inequality variables are mainly drawn from the IMF Database on gender indicators and the World Development Indicators (WDI) database, over 1990-2013. Our results show that gender budgeting has significant effect on increasing GDI and small but significant potential to reduce GII. These results strengthen the rationale for employing gender budgeting to promote inclusive development. However, our empirical results show no prioritization for gender budgeting in the fiscal space of health and education sectors in the region. 
     
    Key words: gender budgeting, fiscal policy, gender equality, Asia Pacific
    JEL codes: H00, I3, J1
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Would UDAY Brighten up Rajasthan Finances?

  • Mar, 2018
  • Authors Pinaki Chakraborty, Manish Gupta and Lekha Chakraborty
  • Details NIPFP Working Paper No. 211
  • Abstract
    Ujwal DISCOM Assurance Yojana (UDAY) required a number of State governments to take over debt of power distribution companies in their books of accounts. Though this one time intervention made both debt and deficit measures more comprehensive, this has raised many challenges including comparability of deficit across States and long run fiscal implications of power sector debt on State finances.
     
    Keywords: Power distribution companies, debt restructuring, deficits, Rajasthan
    JEL Codes: H72, H74, H77, H81

     

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Fiscal Policy, as the “Employer of Last Resort”: Impact of MGNREGS on Labour Force Participation Rates in India

  • Feb, 2018
  • Authors Lekha Chakraborty and Yadawendra Singh
  • Details NIPFP Working Paper No. 210
  • Abstract
    We examine the impact of conditional fiscal transfers on public employment across gender in India taking the case of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The MGNREGS, as an “employer of last resort” fiscal policy, is a direct employment transfer, which guarantees to provide 100 days of paid work opportunities at a predetermined wage for public works in India through a self-selection criterion. Using unit record data of the latest 68th round of NSS Employment-Unemployment survey, we examined gender differential impacts of MGNREGS on labour force participation rates across States in India. The unit of analysis in our paper is not ‘household’, but is one step ahead to capture the intra-household level of participating behaviour in the economic activity. The results, based on the survey enumerating 2,80,763 individuals in rural areas, revealed that there is a striking heterogeneity in the gender impacts of job guarantee programme across States of India. The probit estimates showed that MGNREGS job card  holder’s labour force participation rates were higher than the non-card holders and the result was more pronounced for women. The analysis of the time-use patterns and the unpaid care economy statistics of job guarantee card holders obtained from the unit records also shows that augmenting public investment in care economy infrastructure is significant for the job guarantee programme to function at its full potential in India.
     
    JEL classification codes: C15, C67, D33, E24, J48
    Keywords: job guarantee, fiscal policy, gender, care economy, labour force participation rate

     

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Internationalisation of the Rupee

  • Feb, 2018
  • Authors Shekhar Hari Kumar, and Ila Patnaik
  • Details NIPFP Working Paper No. 222
  • Abstract
    The Indian Rupee currently accounts for approximately 1% of global foreign exchange turnover. It has a smaller market size across most trading instruments when compared to the top 8 emerging market currencies. In this paper, we evaluate the current status of the Indian Rupee as an international currency using the Chinn and Frankel (2008) framework, and explore the possibility of future Indian Rupee internationalisation. We find that the Indian Rupee has a negligble role as an official sector currency. It has some use as a reserve currency in its economic sphere of influence, but no role as an anchor or intervention currency. Private actor adoption of the Indian Rupee is much larger and more diverse than the official sector. However, this role is mostly restricted to financial flows and portfolio investment. In terms of trade invoicing and settlements in the private sector, the Indian Rupee plays a limited role due to concerns of convertibility and risk management. Given the current path of exchange control and capital account liberalisation, we anticipate gradual internationalisation of the Indian Rupee due to regional competition from the Renminbi.
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Estimates of air pollution in Delhi from the burning of firecrackers during the festival of Diwali

  • Feb, 2018
  • Authors Dhananjay Ghei and Renuka Sane
  • Details NIPFP Working Paper No. 223
  • Abstract
    Delhi is one of the most polluted cities in the world, especially in the winter months from October - January. These months coincide with the religious festival of Diwali. It is argued that air quality gets worse in the aftermath of Diwali on account of firecrackers that get burned during the festival. We use hourly data on PM 2.5 particulate matter from 2013 to 2017 to estimate the Diwali effect on air quality in Delhi. We improve on existing work by using the event study technique as well as a difference-in-difference regression framework to estimate the Diwali effect on air quality. The results suggest that Diwali leads to a small, but statistically significant increase in air pollution. The effect is different across locations within Delhi. To our knowledge, this is the first causal estimate of the contribution of Diwali firecracker burning to air pollution.
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Business Cycle Measurement in India

  • Jan, 2018
  • Authors Radhika Pandey, Ila Patnaik, and Ajay Shah
  • Details NIPFP Working Paper No. 221
  • Abstract

    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.

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The Multilateral Legal Instrument: A developing country perspective

  • Jan, 2018
  • Authors Suranjali Tandon
  • Details NIPFP Working Paper No. 220
  • Abstract

    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.

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