Fiscal Behaviour and Climate Change Commitments in India: Analysing the Budget Credibility
Publication dateMay, 2023
DetailsNIPFP Working Paper No. 396
AuthorsLekha Chakraborty, Ajay Narayan Jha, Jitesh Yadav, Amandeep Kaur and Balamuraly B
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