The study focused on the system of state transfers to the municipal bodies, addressing itself to one basic question - what should be done to improve the system of financial 'transfers' from the state governments to municipalities or what kinds of norms and rules should govern the system of transfers that would allow the municipalities to make better use of them and conform to the basic canons of simplicity and transparency?

The central aim of the State Fiscal Study: Tamil Nadu is "to establish the capacity of the state of Tamil Nadu to absorb development aid effectively - that is, to determine its capacity to generate necessary counterpart funds in the short-term and, in the longer-­term, its capacity to generate funds to maintain the assets and programmes financed by development aid". The growth performance of Tamil Nadu has been impressive despite the modest natural resource base and it i;: ; among the most industrialized states in India. Although its finances are well-managed there is still room for selective fiscal correction. During the period under study, there was a significant rise in revenue expenditure at the expense of capital expenditure. In financing the expenditure, the revenue-raising effort has so far been concentrated only on tax revenue and attempts to augment non-tax revenues through cost recoveries has been a neglected area and therefore need clear revamping. Fiscal balance for most part of the study period was negative as also on the decline because of fast growth of revenue expenditure while signs of improvement in recent years have not proved to be long lasting. If the same fiscal trends continue, fiscal deficit is likely to assume disquieting levels due to increasing component of revenue deficit. In addition, capital expenditure is likely to shrink further, government debt is likely to be used more for consumption purposes rather than for investment, and maintenance expenditure will be on the decline. A simulated fiscal scenario with a set of suggested reforms, if implemented, can reverse these trends and turn the fiscal balances into surpluses. :

Why is the performance of property taxes in India so dismal? What has constrained the property tax system - the prevailing methods of property valuation and assessment, the administrative and enforcement procedures or other factors? The study reviews the existing procedures and practices and suggests an agenda for improving the tax system.

This study is a part of the UNDP-supported programme on Policy Studies on Economic Reforms.

The objective of the study was to ascertain the fiscal performance of Assam in the past and to construct an alternative fiscal profile for the period 1997-98 to 2001-02 utilising the base scenario as a benchmark. Assam has been suffering from insurgency causing diversion of resources for maintaining law and order. It was declared a special category state in 1991-92 owing to its poor resource base. Non-discretionary expenditures (interest payment, wages and salaries, pensions and current transfers to local bodies) have crowded out resources for development resulting in inadequate capital formation with little or no provision for basic minimum services.

The study has proposed two alternative scenarios of reform. In the first reform scenario, state-specific initiatives have been suggested, which are (a) improving the tax receipts; (b) augmenting non-tax revenues; and (c) restructuring expenditure. The quantitative impact suggests that the state's tax revenues would improve from the level of 4.3 percent of GSDP in 1997-98 to 6 percent in 2001-02. Likewise, non-tax revenue would improve from 1.76 percent to 2.24 percent. Expenditure on wages and salaries would decline and capital outlay would increase. Even while the situation would improve with this reform package, it would still not be enough to restore the fiscal health of the state.

This study, sponsored by the UNDP as part of an overall project to study tax administration in India, examines the administration of motor vehicle tax in three states:Orissa, Punjab, and Maharashtra. Looking briefly at the tax structure in these states, it examines the major legislative provisions and practices related to the various aspects of administration of this tax including collection, enforcement, and computerization. It also makes some suggestions for improving the administration of this tax in terms of cost of collection, taxpayer convenience, and general economic efficiency.

The model law is aimed at providing the States with a statutory framework for introducing a system of VAT. It would help states in having harmony in the structure and procedures of the proposed VAT in the country. It is observed that in the absence of any model before the states, varied systems causing diversity in the structures and procedures have cropped up.

The objective of the study was to prescribe ways to put state-level finances on a sound footing, and improve the developmental impact of public spending and sectoral policies.

The purpose of this World Bank sponsored study was to review the performance of the finances of the Government of National Territory of Delhi (NCT), assess its fiscal stance, and suggest options for sectoral and fiscal reforms to improve and strengthen its finances. The focus of the study was on two sets of questions: (i) what, if any, are the major fiscal issues facing the Government of NCT?; and (ii) what reform measures would best address those issues?

The fiscal study of Delhi differs from the fiscal studies of other states in two respects

The report was finalised and submitted to the World Bank (the sponsors) and the Government of Haryana. This is a detailed study of the trends in Haryana state finances and its various components in the backdrop of the macroeconomic features of the state. It also examines some specific sectors like education, power, irrigation and transport that have a direct bearing on the public finances of the state and makes estimates of additional investment required, if any. A number of suggestions regarding policy are made in the area of taxation, cost recovery and expenditure compression. Also projected are budget­ary components over the medium term under a 'no reform scenario' (incorporating the power sector reforms already started), and 'additional investments with revenue reforms scenario'. The results indicate that only with reforms can additional investments, needed to maintain and accelerate growth, be undertaken.

The Infrastructure Development Finance Corporation (IDFC) sponsored this study for examination of broad trends in the budgetary components of the Government of Maharashtra. The report also incorporates projections of the same over the medium term under alternative sets of assumptions regarding different policy scenarios, including the 'best case' and the 'worst case'. The study highlights the recent deterioration of the government finances in Maharashtra and underscores the need for corrective action.

This paper attempts to identify the main sources of vehicular pollution in Delhi. It highlights the importance of traffic scenarios and modes of transport on the emissions, and underscores the need for policies to induce shifts to more efficient transpoIt4tion modes with lower energy consumption and emission. The paper makes several specific recommendations to: (i) induce shifts to more efficient transport modes; (ii) encourage use of new technology alongwith phasing out of old vehicles; and (iii) induce production and use of cleaner fuels.

Abatement of mounting health and other costs arising from environmental degradation require major changes in government policy. Governments and others, such as, industry quite recognise that regulations should be supplemented and combined with a system of economic incentives that internalise the externalities arising from pollution in a cost effective manner. The use of economic instruments to address environmental problems has been endorsed by the Government of India in its policy statement for abatement of pollution in 1992. The statement asserts that, keeping in line with the 'polluter pays' principle, the introduction of economic instruments such as effluent charges should be investigated. The study addresses the task of designing effluent charges which can be introduced to control water pollution.

This report proposes, and provides the design for, a crop-specific presumptive supplement to the land revenue, which like the land revenue will be land-based and levied per acre. The supplementary levy is to be related, on the basis of income norms obtained from field surveys, to observed crop yields, which will serve as the presumptive indicator. The case for a crop-specific levy is predicated on the assumption that returns to cultivation are not equalised by cropping pattern shifts, even within a homogenous agro-climatic region, because of supply-side entry barriers in terms of soil and irrigation requirements, and further constraints imposed by the need for bilateral tie-ups between the cultivator and buyer in sunrise sectors like seed propagation. The design for the levy proposed includes exemption for crop failure, whether idiosyncratic or non-idiosyncratic, in the form of a threshold yield below which the tax does not apply. The only information required for each assessment year is a listing of cultivators growing any of the crops in the subset selected for taxation. and an identification of those in each list whose yields did not fall below the stipulated exemption threshold. Such information will be easily and costlessly obtainable locally, which is why levies of this type are feasible only at panchayat level. The list of crops for consideration will first be identified by panchayats in accordance with the local ordering in terms of profitability, and forwarded to a state-level agency, which will define the taxable subset based on surveyed data. It is recommended that the revenues so raised should be jurisdictionally retained for improvement of agricultural and other infrastructure. This will facilitate compliance, give panchayats a stake in enforcement, and enable downward accountability in place of the upward accountability ensured by present systems of audit and control of government expenditure.

The NIPFP collaborated with the Madras School of Economics and the World Resources Institute, in conducting a cross-country study on Fiscal Instruments for Environmental Sustainability for three countries, India, Mexico and Poland. The study looked into the relevance and effectiveness of fiscal mechanisms for addressing environmental problems. The critical issue for the study was economic and fiscal mechanism effectively addresses the environmental problems?

As part of the study, the pricing policies and practices in respect of energy, water and solid wastes were examined on the basis of secondary evidence and published reports.

This study is an exhaustive scrutiny of the present system that includes rate structure, valuation, evasion of duty, administrative structure, collection of tax, administrative organisation, interface with other departments and legal considerations. Experience of other states and inter-state comparisons are used where required. The report recommends substantial reduction in rates of stamp duty for efficiency reasons as well as to contain tax evasion, and a series of administrative measures to modernise an essentially unchanged system of several decades in line with changed circumstances. It also recommends substantial changes in the relevant Act to control widespread evasion through under-valuation and avoidance of tax through legal loopholes.

The committee appointed by the Reserve Bank of India recommended a revision of the WMA limits of states to bring them in line with the size of their respective budgets. The recommendations also included a liberalisation of the special WMA limits and a tightening of the overdraft regulation scheme. Most of the recommendations have been accepted and implemented by the RBI

This was the theme paper presented at the seminar on Issues Before the Eleventh Finance Commission. The paper covers major issues of fiscal federalism in India at the present juncture, keeping in' view the terms of reference of the Eleventh Finance Commission. After covering the essential features of the macroeconomic imperatives before the governments at the central and the state level, it critically reviews the revenue sharing and grants system currently prevailing, and makes suggestions for changing them. It reviews the thorny problem of indebtedness of the states, and examines ways in which the Finance Commission can tackle the issue.

A group of officials chaired by the Secretary, Department of Revenue, Ministry of Finance, and based at NIPFP, redrafted the Indian Stamp Act, 1899. The Act which has been in use now for 100 years, has outlived its utility and is constraining both in terms of providing evidentiary value to transactions, as well as source of revenue.

The newly drafted Stamp Act, which will have to be vetted by the Ministry of Law and pass through normal channels of processing, has been substantially revised in respect of two areas (a) conveyancing of properties, including machinery for assessment of property values; and (b) treatment of financial instruments.

This report was part of a larger research project conducted at the NIPFP. In suggesting measures to revamp customs administration, the report dealt with the broad categories of import-export licensing policy, structure of tariffs and some general aspects. The report is based on field visits to various collectorates of customs and central excise, meetings and discussions with officers at various levels and representatives of chambers of business and industry.

The conventional conclusion is that water charges should be revised upwards so that they reflect the social cost of water use. Effluent tax which addresses the issue in water conservation and environmental protection should also be implemented alongwith the rational price of water, for use of water as a receptacle for pollution. The paper was presented at the international seminar on Water as a Social Good.

The subject did not attract the attention of policymakers or academicia because the major part of the municipal infrastructure in the past was financed out of grants extended to municipalities by the state governments. The state governments did not encourage debt financing of infrastructure even for those municipal bodies which were statutorily permitted to borrow for specified purposes.

Recent years have, however, witnessed significant changes in the country in the mode of municipal infrastructure financing. It is in this context that the NIPFP undertook with support from NIUA under the US AID-supported programme, a pilot study of municipal debt financing in 12 municipal corporations with a view to gain an initial understanding of issues concerning the subject of municipal debt. The study was designed to probe into issues, such as, the extent to which debt as an instrument is used for financing the infrastructure; the use to which debts have been generally put; and the impact of such debts on the revenue budget of municipalities.

The water sector comprising irrigation, rural water supply, and urban water supply is a major component of expenditure in India. In 1994-95, it accounted for approximately 25-­28 percent of the total capital expenditure of the states and between 1.5 - 8.7 percent of their revenue expenditures. What have been the trends in public expenditure on water? What are the recoveries on water account? Is the uncovered portion of expenditure rising or declining? What is the contribution of the water sector to the fiscal deficit of the states? Addressing these questions and based on the finance accounts of states, the study has highlighted that the uncovered portion of expenditure has risen in most states, which is not in the interest of the sound finance of states. The study has advocated the need to formulate appropriate pricing policies for the water sector.

The main objective of this study was to estimate the quantum of open and hidden subsidies given by the Union and the State governments in India. Subsidies were defined as unrecovered costs of providing various services. The estimation was done at a disaggregated level, both in terms of services and in terms of States. A three-way classification of government services into pure public goods, merit goods and non-merit goods was made and subsidies were estimated for the latter two categories. Surpluses and subsidies were estimated and reported separately.

This study assesses the extent of rationalization of tariff and non-tariff barriers by the year 1993-94. It found that there was a decline in the dispersion and in the average rate of tariff. While the nominal and effective rates of protection also declined, they were reversed when corrected for overvaluation for the exchange rate. The study also found little relation between collection rates and the official tariff rates, indicating the strong presence of exemptions.

Tax deduction at source (TDS) is an instrument designed for quick and smooth collection of tax and to enforce compliance with the tax laws. Enforcing a scheme of TDS requires evolving suitable procedures, and infrastructure for monitoring, cross-verification and quick disposal of refunds. Absence of adequate procedures or infrastructure leaves scope for misuse of the provisions of the scheme and/ or harassment of those claiming refunds. It is in this context that this study critically examines the operation of TDS.

This paper, presented at the 1997 Congress of the International Institute of Public Finance, Kyoto, analyses the scope of using pollution tax for inducing distilleries to undertake adequate pollution abatement. Using a non-linear programming model, the study examines various choices available to a distillery, including the use of clean water for dilution of the stream of waste water. The results of the study emphasise that pollution tax has to be coupled with appropriate pricing of ground water to ensure that pollution abatement is undertaken to the desired extent.

The study, examines the administration of profession tax in three States - Andhra Pradesh, Kamataka and Maharashtra. After making a survey of the major legislative provisions and practices related to various aspects of tax administration, including tax structure, taxpayer identification, administrative structure and staffing, assessment and collection, it makes suggestions for improving the administration of this tax in terms of cost of collection, taxpayer convenience, and general economic efficiency.

This study has proposed amendments to the Indian Stamp Act and States Stamp Act, in the light of the new economic policy. An important perspective of the proposed amendments is that the amended Acts should not hamper economic growth and the structure of duties should be so designed as to minimize the regressive effects.

The objective of the study was to enquire whether the Central fiscal incentives provided to the small scale industry are rational and well defined, and till what point the support is rational and justified. The study involved exploring the existing data sources as well as ascertaining the impact of the central fiscal incentives through a sample survey of registered 551 units.

The major findings of the study are that SSIs may require selected incentives to survive and grow as they are not only at a disadvantage vis- a-vis other industries but also show reasonably good performance in terms of productivity indicators. It is emphasized that in the short run some tax incentives need to continue, but over the long run non tax incentives like infrastructural development and initial finance should be the focus. Emphasis should be on developing strong horizontal and vertical linkages.

This study has made an in depth study of 274 municipal bodies in India. The underlying purpose of this study was to place before the State Finance commissions (set up in pursuance of the Constitution Seventy-fourth Amendment, 1992), a paper that would inform them about: (i) the kind of data base that existed at the level of municipal base; (ii) what use could be made of such a data base; and (iii) what kinds of problems and issues confronted the municipal bodies.

This study was requested by the Ministry of Finance with a view to analyze emerging trends in revenue from Union excise duties specifically following recent rationalization of the scheme of MODV AT and its extension to raw materials and capital goods. The study attempts at identifying the impact of these recent changes on the revenue receipts from Union excise duties through a simulation excise, and indicate factors responsible for decline in growth of revenue experienced in 1995-96.

The main objective of the study are: (i) to estimate the volume and composition of housing subsidy flowing from the Central government, identify weaknesses, and suggest changes to 'make the subsidy system more transparent and equitable; and (ii) an in-depth study of housing subsidies in the two States, Andhra Pradesh and Tamil Nadu and examine what changes in policies and programmes should be brought about for the subsidy programmes to be more effective and efficient.

The purpose of this study was to estimate the potential of property taxes in two cities, namely, Bombay and Delhi. This study undertaken on behalf of the Planning Commission grew out of the overall perception that the actual yield from property taxes was a fraction of the potential; the study was to provide an estimate of the untapped portion of the potential. While the conclusions of the study confirmed the existence of untapped potential, it also revealed the data constraints in undertaking such a study. For example, there exists no proper count even in cities such as Bombay and Delhi of the number of properties, or their use; or the number of properties that stand exempted from payment of taxes; or the number that fall under the Rent Control Act.

This report recommends the use of presumption as one way by which to increase the universe of taxpayers, and thus achieve sustainable fiscal correction in India. Presumption may be theoretically second-best to the ideal direct tax, based on self-declared income actuals with personalized deductions. But this ideal is not possible to achieve or even approach in developing countries like India, where a large volume of business is transacted in cash, and is not routed through the banking system. Faced with a consequent insufficiency of information records of the kind required for verification of self-declaration, enforcement of compliance becomes next to impossible especially in certain sectors and occupations. It is here that the need arises for base-broadening supplements to conventional direct taxation. The report examines the reasons for the failure of presumptive experiments in India, and points out that the Rs 1400 alternative flat levy is not in fact an example of a presumptive levy since absolutely no presumption of any kind is involved. The report also recommends the use of asset­ based presumption for the corporate sector, as a way by which to combat the phenomenon of zero-tax companies.

The major finding of this study, on the basis of a sample survey, was that the withdrawal exemptions have not led to a closure of small scale units in any significant manner. The changes in the provision relating to the use of brand names of others has affected some of the small scale units, as they have not been able to find a market for their unbranded goods. The study recommends the enhancement of the overall limits of exemption in the existing scheme as well as restoration of the exemption withdrawal in the 1994-95 budgets. The study does not favor the reintroduction of notional credit and it recommends a compound levy where a fixed amount is to be paid for units whose production is below Rs.75 lakh.

HUDCO and HUDCO's Borrowers make extensive use of subsidies and have access to direct and other forms of low-cost credit to promote housing and several other activities for the economically weaker and low income groups of households. This study examines the implications of withdrawal or reduction in subsidies. Special circuits and directed credit and suggests options as to what might be done to equip HUDCO and HUDCO's borrowers to deal with this challenge. The package of recommendations relates to resource mobilization strategy (e.g. making larger use of lines of credit mechanism, credit-related bonds. and securitization of mortgages), restructuring of the lending profile and commitment of the entire institutional framework to programmes for the poor rather than the commitment of only HUDCO, and deregulation of HUDCO.

The report examines the system of motor vehicle taxation in Delhi with the objective of analyzing the aspects of economic efficiency, equity, administrative feasibility and inter-state comparability of introducing passenger and goods tax in Delhi. The study also examines the issue of the levy of such a tax on vehicles registered outside the State, by using Delhi roads, and makes an estimate of additional revenue generation from the tax at suggested rates. It also reviews the issue of road congestion and vehicular pollution in this context. The study concludes on the basis of the theoretical principle of user charges, likely incidence pattern and a comparison of taxes on motor vehicles in Delhi and four northern States of Uttar Pradesh, Punjab, Haryana and Rajasthan as well as in the other metropolitan cities of Bombay, Madras and Calcutta that there is scope for such a tax in Delhi, although for administrative reasons it may be best to levy it as a fixed amount per annum in the form of an additional motor vehicle tax.

This study using data relating to 1989-90, develops a methodology for estimating effective rates of commodity taxes with only partial credit for taxes paid on inputs. Effective tax rates have been estimated for all major commodity taxes in India, namely, customs duties, Union excise duties and sales tax. These effective tax rates have been used for computing incidence of these taxes on consumers in rural as well as urban areas.

It examines the trends in Central and State government expenditures since 1974-75 in terms of both budgetary categories and economic and functional classification. The study attempts to explain the trends as an outcome of the operation of various interest group politics. It highlights the phenomenal increase in current expenditure during the eighties. The study also brings out how the increasing divergence in expenditure levels among the States had tended to rise and tries to identify the underlying factors.

This study is divided into three parts. The first part reviews the existing pollution control regime in India. A quantitative assessment of the impact of the regime on air quality and water quality including an assessment of the Ganga Action Programme is made in this part of the study. In the second part four different control regimes through market based instruments are recommended for experimentation. In order to illustrate how the schemes can be operationalized, abatement cost functions are estimated for the pulp and paper industry. This forms the third part of the study. Finally, the study shows how the "producers' surplus" from abatement exceeds the annualized capital cost of setting up effluent treatment plants, thus making pollution abatement a profitable venture under the proposed market-based control regimes.

The study reviews the deficiencies of the existing system of excise and sales taxation and proposes a possible scheme of Value Added Tax (VAT) on which there could be a broad agreement among the Centre and the States, and which could provide an effective remedy for many of the ills of the present system of indirect taxation. The legal, administrative and institutional requirements are also briefly discussed. It is hoped that the study would serve to initiate a debate on the issues requiring immediate attention and possible options.