Wednesday, March 19, 2014

Action Plan on Base Erosion and Profit Shifting an Indian Perspective

NIPFP Working Paper 133
[PDF]

R. Kavita Rao and D. P. Sengupta
March 2014

Abstract

The discussion in this paper highlights some evidence to support the notion that there is base erosion in India. On the specific action points listed in the OECD's Action Plan, a perspective from India’s stand point has been presented along with a brief discussion on the steps needed to prepare for complying with likely proposed measures.

Tuesday, February 25, 2014

Direct and Indirect use of Fossil Fuels in Farming: Cost of Fuel-price Rise for Indian Agriculture

NIPFP Working Paper 132
[PDF]

Mukesh Anand
February 2014

Abstract

A hornet’s nest could be an apt simile for fossil fuel prices in India. Over years a policy maze has evolved around it, with sharply diverging influence on disparate constituencies.1 We estimate the increase in total cost of farming as a multiple of direct input costs of fossil fuels in farming. Over the period between 1990-1 and 2010-1, direct use of fossil fuels on farms has risen and there is also increasing indirect use of fossil fuels for non-energy purposes. Consequently, for Indian agriculture both energy intensity and fossil fuel intensity are rising. But, these are declining for the aggregate Indian economy. Thus, revision of fossil fuel prices has acquired greater significance for Indian agriculture than for the remainder of the economy. We validate these findings by utilising an input-output table for the Indian economy to assess the impact of fossil fuel price increase. We assess that fossil fuels sector has strong forward linkages and increase in its price has a steep inflationary impact. Using a three-sector I-O model for Indian economy, we estimate that a 10 per cent increase in fossil fuel price could cause, mutatis mutandis, the wholesale price index (WPI) to rise about 4.3 percentage points with 0.7 percentage points being contributed by the farm sector alone.

Monday, February 10, 2014

Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India

NIPFP Working Paper 131
[Link]

Rudrani Bhattacharya and Ila Patnaik
February 2014

Abstract

Monetary policy in India has moved towards an increasingly flexible exchange rate regime without any explicit framework for an alternative nominal anchor. The failure of monetary policy to anchor inflationary expectations of agents, coupled with negative supply shocks has kept inflation above the acceptable range of 5-5.5% for last five years in India. In this paper we present a model for policy analysis for India that provides insights in the setting of an inflation targeting framework to anchor inflationary expectations. The model offers an understanding of the extent to which various shocks, including the post-global crisis fiscal stimulus, accommodative monetary policy and ensuing decline in global demand, explain growth and inflation in India.

Exchange Rate Regimes and Inflation: Evidence from India

NIPFP Working Paper 130
[PDF]

Biswajit Mohanty and N R Bhanumurthy
February 2014

Abstract

Exchange rate stability is crucial for inflation management as a stable rate is expected to reduce domestic inflation pressures through a ‘policy discipline effect’- restricting money supply growth, and a ‘credibility effect’- inducing higher money demand and reduced velocity of money. Alternatively, the impossibility trillema predicts that in the presence of an open capital account, a stable exchange rate may lead to lack of control on monetary policy and, hence, higher inflation. Using a monetary model of Inflation, this paper investigates the impact of the de facto stable exchange rate regime on inflation in India during different episodes of exchange rate stability. The results show that the impact of exchange rate regime on inflation is not visible in Indian case, which could be because of the offsetting sterilization policy undertaken by Reserve Bank of India (RBI) during expansionary money supply growth resulting from its large scale intervention to even out exchange rate volatility.

Thursday, January 30, 2014

Revival of Mining Sector in India: Analysing Legislations and Royalty Regime

NIPFP Working Paper 129
[PDF]

Lekha Chakraborty
January 2014

Abstract

Impact of fiscal policy at the firm level is a rare field of research. A major lacuna to date is the paucity of studies on the impact of public policy –especially fiscal policy –on the mining firms and their competitiveness. This paper on the mining sector is an attempt to analyse the sector, in particular, at its competitiveness. Against the backdrop of the Planning Commission’s High-level Committee Report on National Mineral Policy 2006, and the subsequent Mines and Minerals (Development and Regulation) Bill, 2011, this paper attempts at the legal and fiscal policy transition in the mining sector of India. The results challenge the popular view that the competitiveness of the mining industry is largely determined by the quality of mine endowments, geological characteristics and production cycle, and highlighted that fiscal policy regime – taxation and royalty regime – that affects the productivity of the mining firms more than the mine-specific factors. Recently, though the legal framework of the mining sector has incorporated the environmental and human developmental aspects in its policy, the fiscal regime related to mining is in a state of flux. Particularly, the current methodology of royalty estimation on an ad valorem basis on the ore, linking to London Metal Exchange (LME) reference Prices, in the non-ferrous non-atomic non-fuel mining sector requires a relook. From the public policy perspective, the royalty estimation should incorporate the mineral value chain and estimate royalty on the basis of concentrate, and in plausible cases, the metal at the end of the mine value chain, after the process of beneficiation and smelting process.

Gender Responsive Budgeting, as Fiscal Innovation: Evidence from India on “Processes”

NIPFP Working Paper 128
[PDF]

Lekha Chakraborty
January 2014

Abstract

Gender responsive budgeting (GRB) is a fiscal innovation. Innovation is defined as a way of transforming a new concept into tangible processes, resources and institutional mechanisms in which a benefit meets identified problems. GRB is a fiscal innovation in that it translates the gender commitments into fiscal commitments through applying a ‘gender lens’ to the identified processes, resources and institutional mechanisms; and arrives at a desirable benefit incidence. Theoretical treatment of gender budgeting as fiscal innovation is not incorporated, as the scope of this paper is broadly on the processes. GRB as an innovation has four specific components: knowledge processes and networking; institutional mechanisms; learning processes and building capacities; and public accountability and benefit incidence. This paper analyses these four components of GRB in the context of India. National Institute of Public Finance and Policy (NIPFP) has been the pioneer on gender budgeting in India, and also played a significant role in institutionalizing gender budgeting within Ministry of Finance, Government of India in 2005. The Expert Committee Group on ‘Classification of Budgetary Transactions” recommendations on gender budgeting (Ashok Lahiri Committee recommendations) led to the institutionalization process, integrating the analytical matrices of fiscal data through a gender lens and also the institutional innovations for GRB. Revisiting to the 2004 Lahiri recommendations and revamping the process of GRB in India is inevitable, at ex-ante and ex-post levels.

Wednesday, November 6, 2013

Integrating Time in Public Policy: Any Evidence from Gender Diagnosis and Budgeting

NIPFP Working Paper 127
[PDF]

Lekha Chakraborty
October 2013

Abstract

Incorporating time in public policy making is an elusive area of research. Despite the fact that gender budgeting is emerging as a significant socio-economic tool to analyze the fiscal policies to identify its effect on gender equity, the integration of time use statistics into this process remain partial or even nil across countries. If gender budgeting is predominantly based on the indexbased gender diagnosis, a relook into the construction of the gender (inequality) index is relevant. This is significant to avoid a partial capture of gender diagnosis in the budget policy making. The “Hard-to-Price” services are hardly analysed for public policy making. The issue is all the more revealing, as the available gender (inequality) index so far has not integrated time use statistics in its calculations. From a public finance perspective, gender budgeting process often rest on the assumption that mainstream expenditure such as public infrastructure is non rival in nature and applying gender lens to these is not feasible. This argument is refuted by the time budget statistics. The time budget data revealed that this argument is often flawed, as there is intrinsic gender dimension to the non-rival expenditure.