ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Indira RajaramanSubscribe to Indira Rajaraman

Unique and Precious

The writer, an economist, was on the faculty of the Indian Institute of Management Bangalore, followed by the National Institute of Public Finance and Policy in Delhi. She was a member of the Thirteenth Finance Commission, whose recommendations covered the fiscal years 2010-15 and has regularly published research papers and book reviews in this journal. Here, she writes about why she thinks the EPW is an "incredible institution."

Preserving the Incentive Properties of Statutory Grants

This paper investigates flows from the centre in respect of the two-part grant for local governments prescribed by the Thirteenth Finance Commission with unconditional and conditional components, covering 2010-15. There is evidence that fiscal compulsions at the centre bent the structure of the grant away from that envisioned by the TFC, and that its incentive properties were thereby not preserved. Local governments are the nodes at which the sustainable development goals for improved sanitation and public health have to be delivered. This is the level at which public finance attention has to be focused.

Understanding the Indian Economy

India's Evolving Economy: Puzzles and Perspectives by A Vaidyanathan (Delhi: Academic Foundation), 2014; pp 348, Rs 1,195, hardback.

Spatial Distribution of Public Services within States in India

Equitable distribution of public services with a local spatial reach poses a challenge where fiscal resource limitations permit universal coverage only as an eventual target. In a federal structure, where the allocation of local public services is devolved to subnational governments, the allocation pattern itself could vary between jurisdictions. This paper investigates the locational pattern of public service delivery points within states in India, using data from the Census Village Directory. Policy directions emerge from the empirical results.

Rural Housing Quality as an Indicator of Consumption Sustainability

An exogenously defined poverty line yields poverty headcounts between any two points in time that are a net outcome of the two-way traffic into and out of poverty. This paper argues that, for the rural Indian context, where housing is too lumpy and illiquid to be used for consumption smoothing, transitions in housing quality in cross-sectional data sets can provide revealed evidence of household perceptions of downside risk to their current consumption levels. Using the two most recent National Sample Survey housing surveys (the 58th round for 2002 and the 65th round for 2008-09), composite housing quality classifications are unbundled, and binary wall quality is selected from cross-quartile behaviour as the feature most responsive to rising household consumption levels. In both rounds, the incremental move to better quality declines beyond the consumption level at which half of all households are in better quality structures. The threshold consumption level at which this happens was lower in 2008-09 than in 2002 and reflects an improvement in housing conditions over the period. However, this effective saturation of the demand for the most basic element of better housing, much before actual saturation, provides a quantitative measure of the percentage of households even in the topmost quartile that fears downside consumption risk.

Response to Rakshit on the Finance Commission

Response to Rakshit on the Finance Commission Indira Rajaraman and 13% in the first two years, followed by 13.5% in the last three years, did not factor in the output gap in the pre-award year 2009-10.

Decentralisation, Preference Diversity and Public Spending: Health and Education in India

Education and health are commonly devolved functions to sub-national governments, even in nations which have a unitary rather than a federal structure. This paper investigates, for the specific case of a federal country like India, whether differences between states in shares of public spending on health and education show convergence over time, and the impact of episodic horizontal partitioning of states on this process. Our analysis rejects the hypothesis that preferences for health across state level jurisdictions are becoming more uniform over time, but for education, there is evidence of convergence, albeit at a low rate.

Raja Chelliah (1922-2009)

A tribute to Raja Chelliah, the public finance expert who also built two institutions in New Delhi and Chennai, and who died in early April.

Rural Unemployment 1999-2005: Who Gained, Who Lost?

There is an overall rise in rural unemployment, in terms of both total and partial failure to find work during the reference week, between the 55th (1999-2000) and 61st (2004-05) round employment surveys of the National Sample Survey. This is something of a puzzle given the reported rise in monthly per capita rural expenditure between the two rounds. The decline in unemployment among males with secondary school or higher education, relative to illiterate males, suggests that the rise in rural prosperity closely matches the pattern of access to rural school facilities. Of the four disadvantaged groups tested for, scheduled tribes face the highest incremental unemployment, which remains unchanged into the 61st round. This is an important pointer to the required regional configuration of workfare programmes like the National Rural Employment Guarantee Scheme, and for the spread of rural schools.

Functional Devolution to Rural Local Bodies in Four States

The Eleventh Schedule added to the Constitution by the 73rd amendment lists 29 functions devolvable by states to rural local bodies. States were free to set the speed and design of their approach to decentralisation under the general framework of the Constitutional mandate. Fourteen years on, a quantitative measure is attempted in this paper of the extent to which functional transfers have been achieved through the budgetary transfer of funds, with respect to the fiscal year 2006-07, in four states: Madhya Pradesh, Chhattisgarh, Rajasthan and Orissa. The approach taken here is thus radically different from that in official documents, where functional transfer to rural local bodies is dealt with in a purely qualitative manner, based on administrative notifications. Without an associated budgetary provision these do not carry any operational significance.

Tax Buoyancy Estimates for Indian States

With the introduction of a destination-based VAT in all but eight states starting April 2005, there is need for a good baseline indicator of tax buoyancies in states in the period immediately preceding. This paper attempts to provide such a base, with buoyancies estimated over a 23-year span starting in 1980-81. If estimated over a sufficiently long period of time, the buoyancy coefficient essentially estimates the underlying revenuegenerating properties of the system with endogenised tax policy. A log linear trend fit over the entire period showed serial correlation, which is eliminated for all but one state, Assam, with the introduction of structural breaks. A third specification, including the log of the per cent share of industry in the domestic product, eliminates serial correlation for Assam, and improves the goodness-of-fit for some other states. In all but six states, the sign of the change in the buoyancy coefficient at the break is positive. Where the buoyancy-enhancing break occurs in the late 1990s, the spurt in tax effort might have been an endogenous response to the expenditure shock from implementation of the higher salary scales recommended by the Fifth Pay Commission.

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