Modeling India’s External Sector: Review and Some Empirics

NIPFP Working Paper 138
[PDF]

N. R. Bhanumurthy, Sukanya Bose and Swayamsiddha Panda
May 2014

Abstract

In the aftermath of global food & fuel price spikes and the recent global financial crisis, understanding of external sector behaviour has become crucial. More specifically, the transmission mechanism of external sector shocks to domestic macroeconomic variables is essential for undertaking relevant policies to mitigate adverse impact of such shocks. Here an attempt has been made to review the theoretical and empirical issues relating to India’s external sector behaviour and present a suitable analytical framework for macro modeling.

Dependence of States on Central Transfers: State-wise Analysis

NIPFP Working Paper 137
[PDF]

C. Bhujanga Rao and D. K. Srivastava
May 2014

Abstract

This paper examines the dependence of states on central fiscal transfers. The pattern of dependence of states on central transfers is studied with respect to five groups of states, namely, high, middle and low income general category states and two groups of special category states categorized into high and low income states. We make a distinction between transfers that are in the form of an entitlement like states’ share in central taxes or statutory grants vis-a-vis transfers that are discretionary and depend on centre’s decisions. In terms of groups of states, the extent of dependence is relatively quite high for the special category states and the low income states. The extent of dependence was lowest during the period covered under the Tenth Finance Commission period. It has since increased, for all states considered together, by about 3.5 percentage points, from 37.4 percent to 40.9 percent of states’ revenue receipts. This increase comes both from entitlement transfers and discretionary transfers to the extent of 2.1 and 1.3 percentage points, respectively.

Exploring policy options to include petroleum, natural gas and electricity under the Goods and Services Tax regime in India

NIPFP Working Paper 136
[PDF]

Sacchidananda Mukherjee and R. Kavita Rao
May 2014

Abstract

The study analyses the impact of keeping crude petroleum, natural gas, motor spirit (gasoline/ petrol), high speed diesel (diesel), aviation turbine fuel (ATF) and electricity out of the Value Added Tax (VAT) scheme. Specifically, the study finds that keeping these items out of the input tax credit mechanism (either partially or fully) would result in cascading. Through an input-output framework, this study proposes some alternatives to the proposed design of GST and assesses the implications for cascading and prices. It captures the degree of cascading across 48 sectors under different scenarios and explores alternative policy options to phase out under-recoveries of oil market companies on account of sales of diesel and petrol under the administered pricing mechanism.

Room at the Top: An Overview of Fiscal Space, Fiscal Policy and Inclusive Growth in Developing Asia

NIPFP Working Paper 135
[PDF]

Rathin Roy
April 2014

Developmental Disability Index for Hill States in India

NIPFP Working Paper 134
[PDF]

Rita Pandey and Purnamita Dasgupta
April 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.

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.

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.

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.