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The objective of this paper is to examine the nature of India’s federal system, the reforms that have occurred over the last ten years, and what remains to be done. We begin by briefly describing the key federal institutions in India,... more
The objective of this paper is to examine the nature of India’s federal system, the reforms that have occurred over the last ten years, and what remains to be done. We begin by briefly describing the key federal institutions in India, focusing particularly on the mechanisms for center-state transfers. These transfers are quite large, and are the major explicit method for dealing with inequalities across constituent units of the federation. We then examine the evidence on how India’s political economy has affected the practical workings of the transfer mechanisms. We next describe recent and potential reforms of the center-state transfer system, in the context of evidence of widening interstate economic disparities. This is followed by a consideration of broader actual and possible reforms in India’s federal institutions, including tax assignments and local government reform. We conclude by relating our discussion to other dimensions of economic reform in India. * This paper has been...
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The paper reviews tax policy and reforms in India with a view to identifying factors constraining its low revenue productivity. After setting a framework in terms of best practice approach to tax design and reform, the paper examines... more
The paper reviews tax policy and reforms in India with a view to identifying factors constraining its low revenue productivity. After setting a framework in terms of best practice approach to tax design and reform, the paper examines important changes in tax policies and trends in tax revenues at Union and State levels. The analysis helps to identify the major shortcomings of the Indian tax system. The fragmented Constitutional assignment of tax on agricultural and nonagricultural incomes to Union and State governments makes it difficult to levy a comprehensive income tax and opens up an easy avenue for avoidance and evasion. Multiple objectives imposed on the tax system result in a plethora of exemptions and preferences causing significant loss of revenue and creating unintended distortions. The government tends to tax those sectors where it can raise revenues easily in ad hoc manner and this causes additional distortions. Difficulty in taxing the unorganised sector incomes further...
Budget 2017-18 was presented at the time when the global situation is inhospitable, marked with protectionism and domestic environment is constrained by the twin balance sheet crisis. The investment climate is further jeopardised by the... more
Budget 2017-18 was presented at the time when the global situation is inhospitable, marked with protectionism and domestic environment is constrained by the twin balance sheet crisis. The investment climate is further jeopardised by the note ban. There was a great deal of expectations on the budget this year to create a policy environment to kick-start the virtuous investment cycle in the economy. However, this budget has turned out to be a mere `business as usual' budget. While it does well to be prudent in containing the deficits, it fails to address the critical issue of accelerating investment and employment. The capital expenditure as a ratio of GDP is static and the clean-up of tax preferences, as promised, to reduce the corporate tax rates is yet to be initiated. The Finance Minister has lost the opportunity to prune the exemption list and align the excise duty rates in preparation to the GST implementation. Finally, the measures to reduce cash donations and the introduct...
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India has witnessed impressive growth performance since the market based re-forms were introduced in 1991. However, its regional spread has been uneven. Consid-ering the fact that over 63 per cent of the population lives in economically... more
India has witnessed impressive growth performance since the market based re-forms were introduced in 1991. However, its regional spread has been uneven. Consid-ering the fact that over 63 per cent of the population lives in economically lagging states and they have over 67 per cent of children in the age group 0-14 demographic dividends can be realised only when a system of intergovernmental transfers is designed to offset their fiscal disabilities. The present paper analyses the design and implementation of gen-eral and specific purpose transfers in India. While the general purpose transfers are given to enable the States to provide comparable levels of services at comparable tax rates. However, given the large differences in the revenue capacities of the states with the rich-est large state having five times the per capita income of the lowest, it is politically infea-sible to offset the differences in revenue capacities completely. Therefore, the specific purpose which are meant ...
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The paper analyses important issues in Indian public finance in the context of the In-dia's economic development. Given the predominance of working population and with chil-dren in the age group 0-14 constituting over 40 per cent of... more
The paper analyses important issues in Indian public finance in the context of the In-dia's economic development. Given the predominance of working population and with chil-dren in the age group 0-14 constituting over 40 per cent of the population, government fi-nance has a critical role not only in protecting life and property but also in creating physical infrastructure to expand economic activities to generate employment opportunities and in providing social infrastructure to empower them to get productively employed. The analysis public spending, however, shows that spending on education and healthcare is woefully in-adequate and expenditures on interest payments, subsidies and transfers have crowded out spending on physical and social infrastructures. The reasons for the above phenomenon have to be found in the low levels of taxation apart from lopsided priorities. Based on the 98 country average behaviour, the paper shows that the tax-GDP ratio in the country is lower by 2...
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Page 1. Draft for Comments. September 11, 2007 Peace, Progress and Prosperity in the Northeastern Region: Vision 2020 Volume I M. Govinda Rao Rita Pandey Alakesh Barua Manoj Pant Anuradha Bhasin Gautam Naresh Research Associates CG... more
Page 1. Draft for Comments. September 11, 2007 Peace, Progress and Prosperity in the Northeastern Region: Vision 2020 Volume I M. Govinda Rao Rita Pandey Alakesh Barua Manoj Pant Anuradha Bhasin Gautam Naresh Research Associates CG Hariprasad. Monica Jaitley. ...
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... Please update your bookmarks. Ideological Factors, Political Stability, and Tax Revenue Determination-A Case Study of Four States in Indian Federation. M Govinda Rao. Public Finance = Finances publiques, 1979, vol. 34, issue 1, pages... more
... Please update your bookmarks. Ideological Factors, Political Stability, and Tax Revenue Determination-A Case Study of Four States in Indian Federation. M Govinda Rao. Public Finance = Finances publiques, 1979, vol. 34, issue 1, pages 114-28. ...
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Critically appraising the recommendations of the Thirteenth Finance Commission, this paper points out that despite some tinkering with one of the indicators, its approach to tax devolution suffers from the same limitations as those of the... more
Critically appraising the recommendations of the Thirteenth Finance Commission, this paper points out that despite some tinkering with one of the indicators, its approach to tax devolution suffers from the same limitations as those of the previous commissions. Furthermore, the inability to offset the fiscal disabilities of the states has led it to recommend as many as 12 different types of grants with a host of conditionalities. There are serious questions of design and implementation of conditions, the Commission's recommendations on the goods and services tax have been resented by the states and this has actually taken the reform backwards. Due to all these reasons, we have lost yet another opportunity to reform the transfer system and promote tax reform.
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The paper ananlyzes the recent trends and emerging issues in Indian fiscal federalism. The overlapping assignment system, signigifant vertical and horizontal imbalance and the inability of the transfer system to offset the fiscal... more
The paper ananlyzes the recent trends and emerging issues in Indian fiscal federalism. The overlapping assignment system, signigifant vertical and horizontal imbalance and the inability of the transfer system to offset the fiscal disabilities of the states are ananlyzed in detail. The emergence of caolition government at the centre, regional particies in the states, and regional parties becoming pivotal members of the central coalition combined with declining time horizon has resulted in expansion of quasi public goods and subsidies and transfers at both levels. The political developments have also brought to the fore the conflicts between the centre and states on the one ahnd and among the states ont he other. The paper underlines the need to have an effective institutional arrangement for intergovernmental bargaining and conflict resolution. Absence of such an institution is an important shortcoming in Indian fiscal federalism.
This working paper presents an analysis of the strategy required to generate the required resources for investment in various services necessary to achieve the MDGs. The analysis attempts to quantify the fiscal space to finance the MDGs... more
This working paper presents an analysis of the strategy required to generate the required resources for investment in various services necessary to achieve the MDGs. The analysis attempts to quantify the fiscal space to finance the MDGs and identify the necessary fiscal reforms required to finance the MDGs in a sustainable manner. The next section outlines the analytical framework used to determine the potential for expanding fiscal space in an economy. Section 3 makes an assessment of overall financing requirements for achieving the MDGs and compares it with the Tenth Plan outlay. Section 4 explores the prospects of domestic revenue mobilisation. Section 5 analyses expenditure trends, its consistency with MDG costing requirements and explores the scope for creating fiscal space by improving efficiency and reprioritisation. Section 6 considers the role of ODA and examines the scope for borrowings (both external and domestic) and section 7 deals with the possibilities of enhancing fi...
The paper addresses the issue of financing the achievement of the Millennium Development Goals in a sustainable manner in a small, low income and landlocked country, the example being Bhutan. The analysis shows that although MDG financing... more
The paper addresses the issue of financing the achievement of the Millennium Development Goals in a sustainable manner in a small, low income and landlocked country, the example being Bhutan. The analysis shows that although MDG financing is nested within the plan outlay, significant efforts will be needed to ensure adequate resources for financing the plan and smoothening the wide year-to-year fluctuations in revenues and expenditure flows. The paper explores the availability of additional fiscal space using the fiscal diamond framework to identify policy and institutional reforms needed for raising revenues from tax and non-tax sources, improving productivity from public spending through reprioritisation, accessing external grants and borrowing from domestic and foreign sources.
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The first discussion paper on Goods and Services Tax released by the Empowered Committee is an important step in signalling the consensus and commitment to harmonise the indirect taxes levied by the states and the centre and in traversing... more
The first discussion paper on Goods and Services Tax released by the Empowered Committee is an important step in signalling the consensus and commitment to harmonise the indirect taxes levied by the states and the centre and in traversing some distance in clarifying the design and implementation aspects of the new tax regime. The efforts of the EC must be complimented for building a consensus on many a contentious issue in the process of evolving the GST in the country. However, much more remains to be done, many of the design and implementation issues are yet to be negotiated and settled and it would take considerable time and effort before they are finalised.
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This is a commemorative volume on Dr. Amaresh Bagchi, one of the greatest economic policy reformers of India, revered as the father of fiscal federalism in the country. The collection comprises original contributions by eminent scholars,... more
This is a commemorative volume on Dr. Amaresh Bagchi, one of the greatest economic policy reformers of India, revered as the father of fiscal federalism in the country. The collection comprises original contributions by eminent scholars, who were also close friends and associates of Dr. Bagchi. Besides dealing with various important aspects of the subject of public economics and Dr. Bagchi’s work—both theoretical and applied—they also add a personal touch to compilation. The reminiscences reveal Dr. Bagchi the man as well as Dr. Bagchi the scholar.
The paper ananlyzes the political and economic developments having a bearing on Centre-state relations in the changing political and economic environment. It ananlyzes the policies and effectiveness of institutions in ensuring checks and... more
The paper ananlyzes the political and economic developments having a bearing on Centre-state relations in the changing political and economic environment. It ananlyzes the policies and effectiveness of institutions in ensuring checks and balances in Indian federalism in the chaging political and economic contexts. In particular, it identifies the major lacunae in the implementation fo policies and effectiveness of institutions particualrly in striking centre-state and inter-state bargains and resolving conflicts.
Over 330 million people live in India’s 5,165 cities, and 35 cities have a population of over a million each. Three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. Over two-thirds of India’s GDP... more
Over 330 million people live in India’s 5,165 cities, and 35 cities have a population of over a million each. Three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. Over two-thirds of India’s GDP originates in urban agglomerations in the country. However, urban governance and finance in India leave much to be desired in terms of providing services to the country’s burgeoning urban population while accommodating different needs and pressures and adapting to shocks, whether natural or human-caused. This paper draws on lessons from fiscal federalism theory and the experiences of governance institutions and financing systems around the world to identify some key reforms needed to ensure more citizen participation and greater accountability in urban governance, and to augment and strengthen the capacity of Indian cities to deliver more adequate services and provide needed urban infrastructure.
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The paper focusses on the policy dilemmas of comprssing the fiscal deficit, lowering interest rates to revive the growth process and the probelm of inflation due to large and persistent deficits.
The article examines the probelms associated with drafting the new federal constitution in Nepal. The Constituent Assmebly failed to get a draft for approval even after sevderal extensions. The dision within the country by diverse groups... more
The article examines the probelms associated with drafting the new federal constitution in Nepal. The Constituent Assmebly failed to get a draft for approval even after sevderal extensions. The dision within the country by diverse groups and the interference by some neighbouring countries has enormously complicated the process. The paper takes the first principles of federalism as the starting point and provides a roadmap for the new Constituent Assembly to foloow in drafting the federal constituion for the country.