Professor of Economics, Ashoka University, Sonepat, India.

Central banks throughout the world predict inflation with new-Keynesian models in which, after a shock, the unemployment rate returns to its so called "natural rate". Accordingly, inflation is related to the output gap, being the deviation of output from its natural level. I present the results of quite extensive testing of this proposition and related recommendations for the conduct of monetary policy. We also test a rudimentary version of an alternative approach currently out of fashion. While this is work-in-progress yet, the results are conclusive and bear significance for the understanding of inflation in India.

Call for Papers

On behalf of National Institute of Public Finance and Policy, New Delhi and the Department of Economic Affairs of the Ministry of Finance, New Delhi, the organisers invite papers for the 14th Research Meeting of the NIPFP-DEA Research Program. This builds on the preceding 13 such meetings.

The meetings have a blend of academic scholars, senior policy makers and finance practitioners. The theme for the 14th Research meeting is macroeconomics and finance, with an accent on capital controls, capital flows, international finance including firm internationalisation, the exchange rate regime and monetary policy. Papers that illuminate these issues in emerging markets are of particular interest.

Extended abstracts or papers (completed papers preferred) should be sent to the e-mail address anurodh54@gmail.com on or before 30 September 2015. The organisers will provide local hospitality and partial air fare for academic presenters.

Professor of Environmental Governance, Crawford School of Public Policy, Australian National University

Intergovernmental fiscal transfers (IFTs) are an innovative way to create incentives for local public actors to support conservation. Local governments’ capacity to generate revenues from alternative land-use activities may be restricted by conservation, and compensation to reconcile local costs with the benefits of conservation that reach beyond local boundaries needs to be considered. This presentation considers some of the key elements of the design of IFTs, including distribution formula, conditionality and accountability. The design of IFTs is presented in the context of forest conservation and REDD+ in Indonesia, which was selected as the case study because of the significance of its forests, the large amount of emissions of greenhouse gases it generates, and its implementation of decentralization in public administration.

Assistant Professor, Faculty of Law, National University of Singapore.

Given its deep and liquid stock markets, India presents a favourable environment for public takeovers. In order to develop and regulate takeover activity, India’s securities regulator the Securities and Exchange Board of India (SEBI) has enacted specific regulations. While at a broad level these regulations appear to attribute their origins to the UK and other countries that have adopted the UK model or its variants, I argue in this paper that takeover regulation in India bears fundamental differences and unique characteristics that have necessitated special treatment.

Due to the prevalence of concentrated shareholdings in Indian companies, the incidence of hostile takeovers has been negligible. While SEBI’s takeover regulations do not confer much power to the target’s board to set up takeover defences, the nature of concentration of shareholdings and other factors offer sufficient protection to incumbent shareholders and managements against corporate raiders. Hence, substantial attention in India is focused on the mandatory bid rule (MBR), which operates to grant equality of treatment to minority shareholders by conferring them an exit option in case of a change in control. India’s takeover regulations are arguably stringent in implementing the MBR. This impedes value enhancing takeovers unless they are effected with the concurrence of the controlling shareholders, who could potentially block them.

Added to this, India’s takeover regulations confer benefits on incumbents that would impede a market for corporate control in the conventional sense. For example, promoters can take advantage of creeping acquisition limits, and also certain exemptions from the MBR when they enhance their positions in the company. Hence, while the takeover regulation overtly appears designed to engender a market for corporate control, its operation coupled with the corporate structure and culture in India attenuate the possibility of takeovers.

Relying upon the political economy of takeover regulation, and more specifically the interest group theory, my goal in this paper is to demonstrate the influence of promoters in shaping India’s takeover regulation. I seek to do so both analytically and empirically. While the Indian markets have witnessed a constant stream of takeovers, they are almost entirely organized changes of control in a friendly manner that trigger the MBR. Voluntary, unsolicited offers that are common in the more developed markets are miniscule in number in India.

Professor of Economics & Public Policy,
The H. John Heinz III School of Public Policy and Management,
Carnegie-Mellon University, Pittsburgh, Pennsylvania.

Retired civil servant

The GST Constitutional Amendment Bill is now being examined by the Select Committee of the Rajya Sabha. This article highlights some issues relating to the Bill, which need to be considered by the Select Committee. In an effort to bring the states on board, the Bill has proposed both a diluted GST framework and a weak implementation structure. Excluding alcohol, real estate and electricity duty will attenuate the GST base and inflate the Revenue Neutral Rate. The levy of the proposed additional tax based upon origin will impose barriers to trade, result in tax cascading, and hamper competitiveness of Indian industry. The Bill does not bring closure to the debate on the GST design and implementation. This is left to the GST Council to be set up in the future. In such a case, the GST Council should have been empowered to enforce its recommendations, but this has not been done. Four clauses of the Bill do not amend the Constitution at all and their presence in the Bill requires review. A number of other drafting changes are necessary in the Bill consistent with legal requirements.

Associate Professor, Department of Economics, Jadavpur University, Kolkata, India.

In recent times the Fourteenth Finance Commission of India has undertaken a major shift towards fiscal autonomy of the states by recommending a substantial increase in tax devolution from 32% to 42% of the divisible pool of union taxes to the states. The union government has reacted by lowering its grants to the states. The question arises: would the step taken by the Finance Commission ultimately reduce the provision of local public goods at the states, a possibility that would need additional policy intervention for controlling the behavior of the union government. The paper discusses the issue theoretically and defines the conditions under which the increase in autonomous transfer to the states would actually increase in provision of local public goods at the states.

Two-day BRICS Experts Workshop on New Development Bank (NDB), jointly organized by the Observer Research Foundation and NIPFP

Dr. Rathin Roy, Director, NIPFP

Dr. Pinaki Chakraborty, Professor, NIPFP

This paper presents an empirical model for minimising selection failure by the tax departments in selecting cases for scrutiny assessment. This model also provides a new methodology for estimating tax gap from limited information that the department collects on a regular basis through scrutiny assessments. Using a maximum-likelihood procedure that corrects for sample selection bias, and the data on the scrutiny assessment exercise carried out by the income tax department, we estimate the model which relates the probability and extent of underreporting to various inputs provided by the tax filer. The estimated model provides a mechanism to analyze the trade-off between the two types of cases of failure- wrong selection of a case and failure to take up the potential under reporter.

Based on availability of diesel for road freight transport, stock of goods carriages, average freight transport capacity per vehicle, average annual distance travel and average fuel efficiency per vehicle, we estimate annual supply of road freight transport for India. We also estimate annual demand for road freight transport based on Input-Output (I-O) Table and other macro variables available in National Account Statistics (NAS). In an ideal situation, supply of road freight transport should match the demand for a given period (say annual), and if not, there is a possibility for under reporting of GDP. The supply of road freight transport which is not realized in official estimate of GDP could be considered as unaccounted GDP and based on this broad framework, this study estimates the unaccounted GDP for India. To check the robustness of the estimates, the analysis is carried out with two consecutive I-O Tables (2003-04 and 2007-08) and for three consecutive years (2009-10 to 2011-12) to weed annual fluctuations in demand and supply.

5^th Raja Chelliah Memorial Lecture

Five Institutions Union Budget Seminar 2015-16 on Reform and Development Perspectives, jointly organized by NIPFP, CPR, ICRIER, IDF & NCAER

Many eastern European countries have reformed their economic systems from a planned economy to a market economy and some of them succeed, and the others fail. It seems that there are two ways to secure the transition. The one is to execute large-scale privatization as quickly as possible. The other is to advance privatization gradually. The gradualists emphasize the importance of institutions such as legal system and financial infrastructure, and they would think that without the institutional infrastructure, privatization might lead to asset stripping rather than wealth creation.

How privatization could affect economic growth depends not only on its scale as well as speed, but also on economic policy adopted by countries and how much a given political regime has a wide range of options. Countries in Central and Eastern Europe and the former Soviet republics don’t have much a viable option, judging from recorded inflation levels and output losses. Given a severe breakdown in the central planning apparatus, they might not able to afford to postpone adjustment. In this case, it seems that rapid reform would be preferable to slow reform.

In our paper, we consider which approaches are best to secure the transition. We examine all the factors such as economic policies, initial conditions and quality of governance in our estimation. We believe our paper has made some advances over earlier literature untangling the various factors affecting success in transition.