Pinaki Chakraborty

Implementation of the National Rural Employment Guarantee Act in India: Spatial Dimensions and Fiscal Implications

Since its enactment in 2005, the National Rural Employment Guarantee Act (NREGA) has been implemented in 200 districts in India. Based on state-by-state employment demand-supply data and the use of funds released under NREGA, it is found that, although it is a demand-driven scheme, there are significant interstate differences in the supply of employment. The supply falls far short of demand, particularly in low-income states, where the organizational capacity to implement the scheme is limited. It is also noted that the NREGA-induced fiscal expansion has not contributed to higher fiscal imbalances. The consolidation of other public employment programs into NREGA has actually kept the total allocation of funds by the central government at a level no higher than those reached in the fiscal years 2002-03 to 2005-06. The NREGA fund utilization ratio varies widely across states and is abysmally low in the poorer states. Since the flow of resources to individual states is based on approved plans outlining employment demand, it may turn out to be regressive for the poorer states with low organizational capacity in terms of planning and management of the schemes, especially labor demand forecasting.

Multilateral adjustment lending to states in India: Hastening fiscal correction or softening the budget constraint?

Abstract The widening fiscal deficit of sub-national governments has made the task of macroeconomic stabilisation much more difficult and complex. In many countries, including India, multilateral lending institutions provide assistance for sub-national fiscal reforms through structural adjustment loans (henceforth SAL) with conditionalities heavily loaded with fiscal correction measures. This paper examines the fiscal impact of SAL in Indian states by analysing the quantitative and qualitative aspects of SAL-induced fiscal reforms. Econometric investigation of fiscal impact reveals that state specific effect of SAL in terms of fiscal consolidation has been mixed. There is evidence of softening of the budget constraints in some states, but there is also evidence of greater reduction in fiscal imbalances of SAL states than non-SAL states. It is also seen that much of the fiscal gains have occurred through improved revenue productivity of the tax system and not through expenditure restructuring. It is also seen that the poorer states have preferred to reduce their developmental expenditures to deal with fiscal stress and to comply with fiscal correction targets. This, in turn, has had adverse growth implications. The paper concludes that the benefits and the acceptability of SAL at the sub-national level in India would critically depend on factors such as the qualitative change in government expenditure in meeting deficient delivery of public services at state level, and the removal of state level social and infrastructural bottlenecks for promotion of growth by releasing government resources through expenditure restructuring and reform.

Federalism, Fiscal Space, and Public Investment Spending: Do Fiscal Rules Impose Hard Budget Constraints?

The primary objective of rule-based fiscal legislation at the subnational level in India is to achieve debt sustainability by placing a ceiling on borrowing and the use of borrowed resources for public capital investment by phasing out deficits in the budget revenue account. This paper examines whether the application of fiscal rules has contributed to an increase in fiscal space for public capital investment spending in major Indian states. Our analysis shows that, controlling for other factors, there is a negative relationship between fiscal rules and public capital investment spending at the state level under the rule-based fiscal regime.

Fiscal Reforms, Fiscal Rule and Development Spending: Two Decades of Indian Experience

This chapter examines the interrelationship between fiscal reforms, fiscal rules and development spending. The objective is to understand the impact of state-level Fiscal Responsibility Act (FRA) on development spending. FRA introduced a fixed numerical ceilings on borrowing for subnational governments in India, which in a way put an upper limit on the fiscal space for spending given the resource envelope. The chapter observes that post FRA, states have witnessed significant improvement in fiscal balance. The econometric estimates reveal that improvement in fiscal balance at the subnational level is largely revenue driven, and revenue cyclicality has altered the fiscal space for development spending with an increase in spending disparity across states.