An autonomous research institute under the Ministry of Finance

 

Working papers

Estimating the Excess Demand for Government Schools in Delhi: How much capacity creation is necessary?

  • Sep, 2022
  • Authors Priyanta Ghosh and Sukanya Bose
  • Details NIPFP Working Paper No. 387
  • Abstract
    The estimation of demand for public schooling remains a neglected field in school planning of Delhi, even though supply trails demand by a huge margin. This paper underlines the very substantial expansions and investments necessary to accommodate the excess demand for government schools in Delhi. The empirical estimation takes into account various sources of demand for expansion: (i) within the existing government schools that are facing supply shortages, often of an acute variety; (ii) arising from children now attending low fee private schools, and, (iii) from children in school age groups, but out of school. Population growth over the next five years representative of future demand in the fringe areas of Delhi is also factored in. The estimates indicate that the expansion required is a mammoth doubling of existing capacities in government schools, 107% increase on existing capacity. Based on estimated excess demand, 632 composite and 275 primary government schools separately need to be established. With the present level of public expenditure on education at 1.4% of GSDP for Delhi, this entails an increase in expenditure on education by 50% of the existing levels. That is, a very significant push in public expenditure is necessary for meeting the excess demand for public schooling.
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Analysis of State Budgets 2022-23 of Major States in India

  • Aug, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 386
  • Abstract
    After two consecutive years (2019-20 and 2020-21) of fiscal stress, state finances in India show sign of improvement in 2021-22RE. With rising economic growth, revenue mobilization has improved which helped states to increase expenditures during 2021-22. To cope up with the revenue stress and rein in deficits and debts, states have contained growth in expenditures during 2019-21. Despite all efforts consolidated fiscal deficit of 18 major states went up from 2.49% of aggregate GSDP in 2018-19 to 2.56% in 2019-20 and 3.89% in 2020-21. Consolidated public debt of 18 states increased from 19.66% of GSDP in 2018-19 to 20.53% in 2019-20 and 23.04% in 2020-21. States received GST compensation from the GST compensation fund which helped them to contain revenue and fiscal deficits. States also received back-to-back loans in lieu of shortfall in GST compensation fund from the Centre during 2020-21 and 2021-22 which helped them to contain public debt. Given the growth prospects of GSDP in 2022-23, overall revenue side of State Budgets 2022-23 seems realistic as states have set cautious targets in revenue mobilization. It is also to be highlighted that states have taken into account fiscal implications of the end of GST compensation regime in the budget estimates of 2022-23. States have resumed following the path of fiscal consolidation post COVID-19 pandemic. Successes in achieving revenue as well as expenditures targets set in the budget of 2022-23 could help states to control
    deficits and debts.
     
    Key Words: State Finances, budget analysis, fiscal management, revenue mobilization, public finance management, public debt, fiscal deficit, revenue deficit, India.
     
    JEL Codes: H20, H61, H62, H63
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Revenue Assessment of Goods and Services Tax (GST) in India

  • Jul, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 385
  • Abstract
    Indian GST completes five years on 30 June 2022. Revenue assessment is important to assess the success of GST in protecting revenues of the Union as well as state governments. By compiling comparable revenue streams for pre- and post-GST regime, we compare the revenue performance of GST for the period 2005-06 to 2021-22RE. Our analysis shows that both the Union and state governments could not reap the benefits of GST in terms of higher revenue mobilization yet. By increasing revenue mobilization from “Non-Shareable Duties” and “Cesses on Commodities” under Union Excise Duties, the Union government could manage the revenue shortfall in GST. The GST compensation (both from the GST compensation fund as well as back-to-back loans from the Centre) helped states to sustain the revenue stream as prevalent prior to introduction of GST. In the post GST compensation regime, some states may face revenue stress. States where dependence on GST compensation (as measured by the share of GST compensation in SGST) as well as the share of SGST in own tax revenue are higher (e.g., Goa, Punjab and Chhattisgarh), they may face relatively higher revenue stress than other states. 
     
    Key Words: Revenue assessment, Goods and Services Tax (GST), Revenue protection, GST Compensation, India.
    JEL Codes: H20, E62, H26
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Income Tax data and Facets of transparency

  • May, 2022
  • Authors R Kavita Rao
  • Details NIPFP Working Paper No. 384
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Natural Disasters and Economic Dynamics: Evidence from the Kerala Floods

  • Apr, 2022
  • Authors Robert C. M. Beyer, Abhinav Narayanan and Gogol Mitra Thakur
  • Details NIPFP Working Paper No. 383
  • Abstract
    Exceptionally high rainfall in the Indian state of Kerala caused major flooding in 2018. This paper estimates the short-run causal impact of the disaster on the economy, using a difference-in-difference approach. Monthly nighttime light intensity, a proxy for aggregate economic activity, suggests that activity declined for three months during the disaster but boomed subsequently. Automated teller machine transactions, a proxy for consumer demand, declined and credit disbursal increased, with households borrowing more for housing and less for consumption. In line with other results, both household income and expenditure declined during the floods. Despite a strong wage recovery after the floods, spending remained lower relative to the unaffected districts. The paper argues that increased labor demand due to reconstruction efforts increased wages after the floods and provides corroborating evidence: (i) rural labor markets tightened, (ii) poorer households bene ted more, and (iii) wages increased most where government relief was strongest. The findings confirm the presence of interesting economic dynamics during and right after natural disasters that remain in the shadow when analyzed with annual data.
     
    JEL Codes: Q54, R22, D12, O44
    Keywords: natural disasters, aggregate activity, household behavior, spatial analysis
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Exploring a Design of Carbon Tax for Coal and Lignite based Thermal Power Sector in India

  • Apr, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 382
  • Abstract
    According to India’s Third Biennial Update Report to the United Nations Framework Convention on Climate Change, electricity production contributes half of India’s total carbon dioxide (CO2) emission (without LULUCF) and 40 per cent of CO2e (CO2 equivalent) emission in 2016. Coal and lignite based thermal power sector is the predominant source of electricity generation in India and contributes 74 per cent in 2019-20. In COP26, India has committed to achieve net-zero (in CO2e emission) target by 2070. Therefore, any strategy to reduce total CO2e emission in India cannot spare emission reductions from coal and lignite based thermal power plants (TPPs).
     
    To accelerate achieving India’s emission intensity reduction target to 45 per cent, we explore a design of carbon tax for coal and lignite based TPPs. Given the constraints involved to design a carbon tax based on Pigouvian tradition, we estimate a revenue neutral rate of tax on CO2e emission by converting taxes on coal and lignite. To make the proposed carbon tax system less disrupting for tax administrations, we propose adjustments of input tax credits with carbon tax liability. The proposed carbon tax will be incentive-compatible, as carbon efficient TPPs will face lower carbon tax burden.
     
    Key Words: Emissions of Green House Gases (GHGs), Carbon Tax, Revenue Neutrality, Thermal Power Generation, Coal and Lignite, India.
    JEL Codes: H23, Q54, Q4, P43
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The Determinants of Tax Morale in India

  • Apr, 2022
  • Authors Chinmay N Korgaonkar
  • Details NIPFP Working Paper No. 381
  • Abstract
    This is a study of tax morale in India. The concept of tax morale or the citizens’ attitude towards tax compliance is vital for the design and implementation of fiscal policy. Tax morale can foster voluntary compliance and hence support the enforcement and deterrence-driven approaches of the tax agencies. However, limited literature regarding the tax morale of Indian citizens is available. The present paper tries to bridge the gap by analyzing the available data for India from the 5 waves of the World Values Survey (1990-2014). Treating tax morale as a dependent variable, this study estimates the factors influencing it. We show that the trust in government, parliament, and civil services positively affects the tax morale of Indian citizens. The correlation between trust in the legal system and tax morale was also positive but not significant. Among the socio-economic variables, education improves the intrinsic motivation of individuals towards tax compliance. Interestingly, the full-time/salaried persons have lower tax morale as compared to the self-employed employees. This finding has important policy implications, given that the full-time/salaried class contributes a significant share of the total taxes paid by the individual taxpayers in India.
     
    Keywords: Tax Morale; Tax Compliance; India; Fiscal Policy; Self-employed; Salaried.
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Trends and Patterns of Tax Expenditures on Union Taxes in India

  • Apr, 2022
  • Authors Sacchidananda Mukherjee
  • Details NIPFP Working Paper No. 380
  • Abstract
    The Union government foregoes revenue on account of various tax exemption/incentive schemes promoted for various purposes. The Constitution of India assigns power of taxation of broad-based taxes to the Union (Federal) government (e.g., Corporate Income Tax, Personal Income Tax, Union Excise Duty, Customs duty). Like the Union government, provincial (or State) governments also provide tax incentives (within the scope and coverage of their taxation power) but revenue impacts (or foregone) of those tax exemption schemes at the state level are not assessed yet. Comprehensive assessment of tax expenditures is important especially after the introduction of Goods and Services Tax (GST). Given the data limitations, the present paper assesses the trends and patterns (structure) of tax expenditures of Union taxes during 2005-06 to 2019-20. Overall tax expenditures of the Union government declined from 8.15 per cent of GVA (Gross Value Added) in 2008-09 to 1.69 per cent in 2019-20. It was possible mainly on account of continuous reduction of tax expenditures on indirect taxes. Tax expenditures on direct taxes (on account of CIT and PIT only) also declined from 32.7 per cent of direct tax (CIT & PIT only) collection in 2008-09 to 22.4 per cent in 2019-20. The tax expenditures related to Union Excise Duty (UED) and Customs Duty (CD) declined from 152 per cent in 2008-09 to 12.6 per cent of tax collection on account of UED and CD in 2019-20. Post Global Financial Crisis (GFC) successive Union budgets raised standard rate of excise duty gradually to pre-GFC level, pruned down the exemption list and consolidated rate structure of excise duty (or CenVAT) to prepare for introduction of GST. This helped the government to contain tax expenditures on
    indirect taxes.
     
    Key Words: Tax Expenditures, Tax Incentives, Tax Policy, Federal Government, Union Taxes, India.
    JEL Codes: H25, H24, H61, H11, D72
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Union Budget 2022-23: Fiscal-Monetary Interface

  • Mar, 2022
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 378
  • Abstract
    If the Reserve Bank of India hikes the policy rates against the backdrop of the mounting geopolitical risks and inflationary pressures, the growth recovery process may slow down. At the same time, keeping the status quo on policy rates for a prolonged period could catalyse the de-anchoring of inflationary expectations. The Union Budget 2022–23 has accommodated high fiscal deficits and has emphasised on “crowding-in” effects of public infrastructure investment. The intensity of global macroeconomic uncertainties on economic recovery in India can be lessened through sustainable fiscal and monetary
    policy coordination.
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Public Financial Management and Budgeting for Children: Evidence from Telangana, India

  • Mar, 2022
  • Authors Anindita Ghosh Divy Rangan and Lekha Chakraborty
  • Details NIPFP Working Paper No. 379
  • Abstract
    Telangana is the newest State in India, formed in June 2014. We focussed on an ex-post analysis on State’s public financial management for children (C-PFM), incorporating the fiscal marksmanship of such spending. We observed that there are 58 child-specific schemes and programs across seven departments in Telangana, in which, the education sector has 79.48 percent of total child budgeting, constituting 8.45 percent of the total expenditure of the State. However, the outcome indicators showed that there are wide intra-State differentials related to selected indicators. The anthropometric indicators also reveal that malnutrition is a major challenge in the State. The Covid 19 pandemic has widened the digital divide in the education sector. The inferences from the public finance analysis for children (PF4C) undertaken in our paper provides thebaseline analysisfor the post-covid fiscal strategy for PF4C in Telangana. 
     
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Intergovernmental Fiscal transfers and Expenditure on Education in India: State level analysis, 2005 to 2020

  • Mar, 2022
  • Authors Sukanya Bose, Noopur, A. Sri Hari Nayudu
  • Details NIPFP Working Paper No. 377
  • Abstract
    There is large heterogeneity across Indian states in the public provisioning of education. The intergovernmental transfers with a mandate for equalisation have a role to play so that states can ensure these essential public goods. This study analyses the trends and patterns in intergovernmental transfers for education - school education and higher education, across three finance commission periods (2005-2020) which saw a number of important policy-induced changes in the overall fiscal framework. The 14th Finance Commission's (2015-2020) proposal of higher share of tax devolution to the states and a move towards general purpose transfers has been hailed as a major shift, which has allowed the states larger fiscal space. On the other hand, the central grants on education, particularly school education, have stagnated. Has it translated to an upward trend in spending on education in the 14th Finance Commission period vis-à-vis the earlier decade? Over time, have the public expenditure levels on school and higher education converged across states, which is the objective of equalisation? The answers to both the questions are negative. The study concludes with some policy recommendations, including restoration of financial concurrency through larger allocations on central schemes on education, and a special focus on the states at the bottom.
     
    Key Words: Intergovernmental Fiscal Transfers, Grants, Finance Commission, Centrally Sponsored Schemes, SSA, Mid-day Meal, Education Expenditure
     
    JEL: H52 H71 H75 H77 I21 I22 I25
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GST, End of Compensation Regime and Stress on State Finances

  • Mar, 2022
  • Authors R Kavita Rao
  • Details NIPFP Working Paper No. 376
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Progressivity of Public Spending on Health care at the Sub-state Level in India: An Empirical Investigation in Tamil Nadu and Bihar

  • Mar, 2022
  • Authors Pritam Datta, Jay Dev Dubey and Mita Choudhury
  • Details NIPFP Working Paper No. 375
  • Abstract
    Progressivity of public spending on health is considered welfare enhancing, and is often quantified through Benefit Incidence Analysis (BIA). In India, BIA analyses have been confined to state-level aggregates, and intra-state variation in progressivity among districts have remained largely unknown due to limited availability of disaggregated data. We use multiple datasets to overcome the data constraint and undertake BIA at the district-level in the two states of Bihar and Tamil Nadu. Disaggregated information from respective state treasuries were combined with central and state samples of surveys conducted by the National Sample Survey Organization to estimate utilisation and incidence of the benefits of public spending in districts. Results highlight that several districts diverge from state-level aggregates on progressivity, and this call for targeted heath interventions at the state-level. Further, a comparison of public spending across vertical tiers of the health pyramid and utilization of health facilities in the two states provide insights on state-level effectiveness of health interventions. The study lays forward a methodological framework to undertake BIA at the district-level in India.
     
    Key Words: Health Financing, Benefit Incidence Analysis, Public Spending on Health, Bihar, Tamil Nadu. India
     
    JEL Classification: H22, I14, I15, I18
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History of disinvestment in India: 1991-2020

  • Mar, 2022
  • Authors Sudipto Banerjee, Renuka Sane, Srishti Sharma, and Karthik Suresh
  • Details NIPFP Working Paper No. 373
  • Abstract
    This paper presents the history of disinvestment in India between March 1991 to December 2020. The history can be divided into four broad phases: 1991-1999 (Phase I), 1999-2004 (Phase II), 2004-2014 (Phase III), and 2014-2020 (Phase IV). There have been relatively few strategic sales, and governments have largely preferred the minority sale route.
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Linkage between Income and Government Expenditure at Indian Sub-nationals: A Second- Generation Panel Co-integration Techniques

  • Mar, 2022
  • Authors Dinesh Kumar Nayak and Bhabesh Hazarika
  • Details NIPFP Working Paper No. 374
  • Abstract
    The present paper examines whether the Wagner’s law that represents the long-run relationship between income and public expenditure holds at the subnational level in India. The paper covers 21 Indian States and a time-period of 40 years from 1980-81 to 2019-20. The validity of the law was examined for nine different panels of states broadly under income categories and geographical regions. Unlike first-generation panel techniques which fails to account the aspects of cross-sectional independence and heterogeneity, the present study tests the validity of the Wagner’s law using the second-generation panel unit root method and cointegration approach. The analysis adopts Panel Dynamic Ordinary Least Square to test the evidence of Wagner’s law hypothesis. The findings reveal that Indian states are heterogeneous in terms of public expenditure, and there exists cross-sectional dependence. There also exists a long-run cointegrating relation between state-level income and state-level public expenditure. For the full sample, while this study finds holding Wagner’s law, there is a mixed validity of the law at different panels across income categories and regions. In addition, it is observed that the validity of Wagner’s law in the Indian Subnational context is mainly driven by the high-income major states, and it is more capital outlay centric.
     
    Keywords: Wagner’s Law; Second Generation Panel Root and Co-integration Tests; Indian States
     
    JEL Classification: C23; H30; H72
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Covid19 and Unpaid Care Economy: Evidence on Fiscal Policy and Time Allocation in India

  • Feb, 2022
  • Authors Lekha Chakraborty
  • Details NIPFP Working Paper No. 372
  • Abstract
    Against the backdrop of covid19 pandemic, measuring unpaid care economy is significant to capture the roles and well-being of men and women. The COVID-19 pandemic has slowed down the global economy, however there is an increasing recognition that the care economy was “working harder than ever”. The economists and policymakers are increasingly getting aware of the consistently ignored care economy in their models and macroeconomic policies. This paper analyses the unpaid care sector in India using the recent Time Use Survey 2020 and explores the fiscal policy measures to address the sector. In India, the Time Use Survey was conducted in 1999-2000, for only selected six States of India. After twenty years, Government of India published the second macro-level Time Use Survey for all the States and Union Territories in India. The chronology of 1440 minutes a day coded into economic activities under Systems of National Accounts (SNA) and Non-SNA in the Time Use Survey 2020 provides evidence for time poverty and time stress, especially for women in rural and urban India. Time poverty affects the income poverty. The allocation and efficiency of nonmarket working time in the unpaid care economy is important for economic growth along with market working time. As the macro policies are constructed only on the basis of market economy, the nonmarket work in the unpaid care economy continues to remain statistically invisible. The link between fiscal policy and time allocation suggest that worsening public infrastructure investment affects the market work with evident gender differentials. The fiscal policies designed to redress income poverty can be partial if we do not take into account the aspects of time poverty. In the post-pandemic fiscal strategy, strengthening the “Employer of Last Resort” (ELR) policy is crucial for tackling the plummeting employment and the humanitarian crisis. However, unless a comprehensive care economy policy is integrated in the Public Financial Management (PFM) tool like gender budgeting to tackle the time poverty in India, the efficacy of such ELR policies can be partial, due to significant gender differentials in accessing the ELR fiscal space.
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Child Development Index in India: Performance at District Level

  • Feb, 2022
  • Authors Ritu Mathur, Namrata Jaitli and Amarnath H.K.
  • Details NIPFP Working Paper No. 371
  • Abstract
    This paper estimates the child development Index at state level for all the states using methodology given in NIPFP working paper 370 - “Estimating Child Development Index at District Level – A Methodology”. This paper presents the results for the year 2015, comparing 640 districts on India Child Development Index. This could be used as a baseline for Sustainable Development Goals and for subsequent monitoring of progress of children quinquennially through 2030. The paper also comments on the expenditure on children at the State level in light of the performance of districts on ICDI.
     
    Key Words – India Child Development Index, Children, Child Development Index, district level estimation, district level data, SDG, Save the Children
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Estimating Child Development Index in India at the District Level – A Methodology

  • Feb, 2022
  • Authors Ritu Mathur, Namrata Jaitli and Amarnath H.K.
  • Details NIPFP Working Paper No. 370
  • Abstract
    The 2030 Agenda for Sustainable Development calls for transforming our world and working towards the future we want. The future we want will, to a large extent, be driven by the youth and the children of today. The survival and development of children to their full potential is essential for building a peaceful, prosperous and sustainable planet. Sustainable development starts with investing in each child. The rights of the child to survival and development, non-discrimination and freedom from all forms of violence are critical for building strong and harmonious communities.
     
    For India, it is particularly important to invest in children now. As per the Economic Survey 2018-191, India’s demographic dividend will peak around 2041, when the population share of working-age (20-59 years) is expected to hit 59 per cent. The Government of India has been focussing on building human capital through investing in education for all, healthcare and skilling. Any slip-up will lead to sub-optimal leveraging of the demographic dividend with severe socio-economic consequences.
     
    There are vast inter-State and intra-State differentials in the status of children. It is important to be aware of regions and districts that do not fare as well as others to facilitate appropriate prioritisation of resources. A first step in this direction is to be able to assess the status of children for all the districts of the country on the basis of globally accepted methodology.
     
    This paper uses the methodologies adopted by Save the Children for two of its global indices for ranking countries on the status of children, adapts it to the India context proposing an India Child Development Index (ICDI).
     
    Key Words – Children, Child Development Index, district level estimation, district level data, SDG, Save the Children
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The “Scissors Effect” of COVID 19 Pandemic on State Finances: Emerging Evidence on Expenditures

  • Jan, 2022
  • Authors Mita Choudhury and Pritam Datta
  • Details NIPFP Working Paper No. 369
  • Abstract

    The COVID pandemic imposed dual pressures on state finances. Contraction in revenues was coupled with an increased pressure to expand public spending to counter the adversities of the pandemic. Evidence from 26 states suggest that aggregate revenues fell by about 5 per cent in the pandemic year, 2020-21. Despite this fall, States have maintained a 5 per cent average growth rate of aggregate spending. Public expenditure in social sector grew at a significantly higher rate than economic services. Within social services, health expenditure in 15 selected major states grew at 16 per cent, the highest among all. This rise in health spending has however, come at the cost of expenditures in a number of other important sectors.  Expenditures in education and nutrition remained nearly stagnant in the pandemic year. 

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Covid19 and Public Finance for Children: A case study of State of Odisha, India

  • Jan, 2022
  • Authors Amandeep Kaur and Lekha Chakraborty
  • Details NIPFP Working Paper No. 368
  • Abstract
    Against the backdrop of covd-19 pandemic, the paper analyses the budgetary allocations pertaining to children, for the state of Odisha. The State of Odisha is consistently using Public Financial Management (PFM) tools for human development to ensure budget transparency and accountability. Our findings suggest that Odisha spent around 5 per cent of GSDP on child budgeting during 2019-20 to 2021-22. The fiscal marksmanship analysis and the PEFA scores of sector-specific child budgeting reveal deviation between budget estimates and actuals in a few sectors. Higher budgetary allocation for children per se does not translate into higher actual spending. Strengthening budget accountability is therefore crucial for better human development outcomes for children. 
     
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Fiscal Illusion and Wagner’s Law: Evidence from Indian Subnational Finances

  • Jan, 2022
  • Authors Bhabesh Hazarika and Dinesh Kumar Nayak
  • Details NIPFP Working Paper No. 367
  • Abstract
    In recent decades, public spending both at the Union and Subnational Governments in India has been increased by manifold. Often the taxpayers systematically misperceive their tax burden as well as benefits received from the publicly provided public goods and services. This leads to fiscal illusion, i.e., they demand more public goods than they would if they had complete information resulting in a higher public spending than the desired level. The present paper analyses the subnational finances in India in search of evidence of fiscal illusion and flypaper effects as well as the validity of Wagner’s law in explaining the increased public spending over the decades. Panel data from 1980-81 to 2019-20 for 20 subnational governments of India were analysed using second-generation panel unit root, and cointegration approaches accounting for the cross-sectional dependence and heterogeneity. The results of the PMG estimation provide evidence for the existence of fiscal illusion induced by intergovernmental transfers and fiscal deficit and a flypaper effect. While the validity of Wagner’s law becomes weak when controlled for intergovernmental transfers and fiscal deficit, the degree of publicness of public spending is found to be low at the subnational level in the country. The increased reliance on the transfers has become a norm for many states, especially the north-eastern and hilly states having implications for the own tax collection at the subnational level, and as a result, the fiscal gap has become larger and larger.
     
    Key words: Public Spending; Fiscal Illusion; Flypaper Effects; Wagner’s Law; Second-generation Panel Unit Root and Cointegration Approach
    JEL Classification: C23; H40; H72; H77
     
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Do Indian financial firms have a robust Grievance Redress Framework in place?

  • Jan, 2022
  • Authors Vimal Balasubramaniam, Renuka Sane, Mithila Sarah and Karthik Suresh
  • Details NIPFP Working Paper No. 365
  • Abstract
    A rapid expansion in the Indian financial sector has necessitated a growing focus on improving customer service which also includes the delivery of a robust Grievance Redressal Mechanism (GRM). A GRM is a formal system through which complaints are resolved in a time-bound manner, thus improving public service delivery in the financial system. This paper assesses the GRM policy content that is available on the website of 21 financial service providers in India. The firms include the top three firms by market share in each sector - banking, insurance, pensions, payments, mutual funds, and brokerages. Financial firms differ in their performance across different metrics, highlighting areas for improvement with rievance redress processes with financial services providers (FSP).
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Issues concerning Grievance Redress Mechanism (GRM) in Indian financial regulators

  • Jan, 2022
  • Authors Karan Gulati and Karthik Suresh
  • Details NIPFP Working Paper No. 364
  • Abstract
    This paper aims to measure and understand the performance of Indian financial sector regulators vis-a-vis grievance redress. This is based on learnings from international best practices. It looks at the structure and policy apparatus of redress systems of financial regulators and the challenges consumers face while accessing them. Regulators differ in their approaches to grievance redress mechanisms, face conflicts of interest, and follow complicated processes. They also take too long to resolve grievances and do not have a defined point of closure. The regulations are often not accessible to consumers, and when they are, they are difficult to understand. This implies a need to simplify the procedure, better inform consumers, and include enforcement provisions to enable greater grievance redress.
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Designing a sound GRM: Principles and International Experience

  • Jan, 2022
  • Authors Sudipto Banerjee and Aditi Dimri
  • Details NIPFP Working Paper No. 366
  • Abstract
    Grievance redress mechanism (GRM) is an essential component of the consumer protection framework in the financial sector. Its presence and performance can have far-reaching effects on the participation of consumers in the financial sector. UsingGRM a consumer can seek expeditious and fair remedy against the wrongs of the financial service providers. While there are various forms of GRM (both judicial and non-judicial), in this paper, we study the design of a non-judicial redress agency. Using first principles we study the design of a financial redress agency by focusing on the critical organisational decisions of — manner of establishment, governance, funding, dispute resolution processes, and performance evaluation. We build on two strands of literature, one studying the GRM design at a conceptual principles level and the other providing practical guidance for setting up a redress agency. Further, the paper analyses four different redress agencies, namely, — Financial Ombudsman Services Scheme in the U.K., Kifid in the Netherlands, Consumer Financial Protection Bureau in the U.S., and Insurance and Financial Services Ombudsman Scheme in New Zealand. The paper contributes by assimilating all the varied resources to map principles, decisions, and case studies to provide an accessible yet comprehensive introduction to designing a GRM for a varied readership.
     
    Keywords: GRM, redress agency, financial ombudsman, dispute resolution, consumer protection in finance
     
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