Amaresh Bagchi: Public Finance Economist Par Excellence.

A tribute to Amaresh Bagchi, a discussion of his academic career, his many interests in public finance and federalism, and an outline of his important contributions in policy formulation by a friend and colleague of many years.

Intergovernmental finance in South Africa: Some observations

This paper examines the evolution and functioning of fiscal decentralisation process and intergovernmental finance in the Republic of South Africa (RSA). It analyses the system of dividing revenues among the three spheres of government. The paper highlights the challenges of designing and implementing intergovernmental fiscal policies and institutions in the post-apartheid era. The paper argues that the costed norms approach developed by the Financial and Fiscal Commission (FFC) has tremendous potential in evolving a simple, objective, and fair system of transfers. However, significant additional work in terms of research, its meaningful dissemination to various governmental units, and building the information system undertake the task is necessary to make it operational. The absence of revenue equalisation in the transfer system is an important weakness of the transfer design. However, provinces do not have much revenue powers. Revenue equalisation in the transfer formula is meaningful only when some broad-based tax handles are assigned to provinces. It is also an important moral and a policy question as to whether there should be incentive to raise revenues from sources such as, gambling taxes and hospital services.Intergovernmental fiscal relations ; South Africa

The Report of the Thirteenth Finance Commission conundrum in conditionalities.

The 13th Finance Commission has forayed into a number of areas partly warranted by its terms of reference and partly due to the approach it adopted. The Commission, besides tax devolution, has recommended as many as 12 different types of grants with a plethora of conditionalities. A critical appraisal of the recommendations shows that the transfer system recommended by the Commissions suffers from the same limitations of inequity and perverse incentives as in the past. The inability to offset the fiscal disabilities of the states leads to giving several grants. Even here, the approach is ad hoc. In particular, the grants recommended for individual states for their special needs is a classic example of ad hoc approach which is arbitrary and judgemental. The recommendations relating to the GST are the ones which have been resented most by the states and actually, this has taken the reform agenda backwards. The "all or nothing" types of conditions do not leave much room for a "grand bargain". A major concern is with a plethora of conditionalities imposed by the Commission. Besides the conditions on GST compensations discussed above, there are several conditions stipulated for achieving fiscal consolidation and incentivising local bodies. There are questions on design, implementation, and monitoring of these conditions. These questions leave one suspect that the Commission lost an opportunity to reform the transfer system yet again.

The Political Economy of India’s Fiscal Federal System and its Reform

This article examines recent and potential reforms in India’s fiscal federal system. We summarize key federal institutions in India, including tax and expenditure assignments, and mechanisms for Center-state transfers. We discuss the institutional process by which reforms can and do take place, including the role of academics, political influences, and especially institutions such as the Finance Commission. In contrast to the past, recent commissions have played a greater role in articulating an agenda for fiscal federal reform, which then proceeds through political bargaining. This change has taken place in the context of, and been influenced by, broader economic reform in India.intergovernmental transfers; economic reform; federalism; regional inequalities

Overlapping fiscal domains and effectiveness of environmental policy in India

The paper analyses the assignment systems and implementation aspects of environmental regulation in regard to water, air, and forests. The assignment of environmental functions and its overlapping is analysed in terms of not only the different levels of government, but also between the executive and judiciary. Specifically, the paper examines judicial intervention in environmental protection in India and argues that judicial activism although can be construed as a part of "checks and balances" in a federal system, it cannot be a substitute to the failure of executive in undertaking the task of environmental protection. The paper also analyses the implementation aspects of environmental policy, particularly the effectiveness of policies and institutions relating to environmental governance. Despite a reasonably clear assignment system, the implementation of environmental functions has not been satisfactory. In most cases, an important factor impeding effective implementation is seen in the structure of incentives to bureaucracy and policy makers and influence of polluters on them. Besides, the environmental regulators do not have access to modern technology and inadequate resources to measure and regulate pollution levels. The paper highlights overlapping roles of executive and judiciary in implementing environmental regulation. In other words, failure of the executive to regulate and monitor pollution levels as well as forest cover has led to the Supreme Court intervention. Interpreting that access to clean water and air as a fundamental right, the courts have pronounced several judgements on the implementation of environmental regulation virtually taking over the role of executive. This has helped to resolve the issues in the short term and in some cases has led to the improvement in environmental quality. However, the solution is ad hoc as the courts cannot undertake the task of implementation nor do they have the technical knowledge to deal with complex problems of environmental regulation. Besides, technology is not static and mandating a technical solution through a judgement such as the use of a particular technology or particular fuel for running of commercial vehicles can create serious problems in the long term. The solution lies in reforming the incentive structure and institutions of governance to make the executive much more sensitive and accountable to environmental issues.

Fiscal Health of Selected Indian Cities

The paper aims to assess the fiscal health of five urban agglomerations (UAs) in India viz. Delhi, Hyderabad, Kolkata, Chennai, and Pune. Our sample consists of five corporations and sixty three smaller Urban Local Bodies (ULBs) dispersed in thirteen districts of five major states. The main objective of the paper is twofold. First, to review the status of revenue generation and expenditure responsibilities of the constituent ULBs. Second, to assess the magnitudes of their fiscal gaps by estimating the expenditure needs and revenue capacities and give some useful recommendations to reduce these gaps. Data on ULB finances for the financial year 2004-05 collected through surveys are used for the analysis. For estimation of expenditure needs the updated financial norms on the selected services specified by Zakaria Committee are used as benchmarks. For revenue capacity estimations Gross City Products (GCPs) are estimated from non-agricultural components of the District Domestic Products (DDPs). Revenue capacities are estimated by applying a tax-to-GCP ratio, which is higher than that existing in a ULB by a politically feasible margin, on the estimated GCPs. The main findings suggest that excepting five small ULBs in Hyderabad, the others are not in a position to cover their expenditure needs by their present revenue collections. All the UAs have unutilised potentials for revenue generations but with the exception of one UA i.e, Hyderabad, all the others would fail to cover their expenditure needs, even if they realise their revenue potentials. In all the UAs, except Chennai, bigger corporations are more constrained than the smaller ULBs. Besides, concrete evidence in support of the efficiency of parastatal agencies in sharing the burden of responsibilities cannot be established. The paper recommends better utilisation of own revenue handles of the cities, by improved administration of the property taxes, implementation of other taxes, and collection of user charges. The option of state governments to allow the local bodies piggybacking a small proportion on their VAT collections can also be explored. Another way to reduce the fiscal gap would be to earmark a portion of the sales proceeds from land and housing by state governments sold through their development agencies for improvement in the infrastructure of the cities. The paper also recommends that the State Finance Commissions (SFCs) should develop appropriate norms for estimating expenditure needs based on which transfers from the state to local governments can be decided.Expenditure Needs, Revenue Capacity, Fiscal Gap

Fiscal health of selected Indian cities.

The paper aims to assess the fiscal health of five urban agglomerations (UAs) in India viz. Delhi, Hyderabad, Kolkata, Chennai, and Pune. Our sample consists of five corporations and sixty three smaller Urban Local Bodies (ULBs) dispersed in thirteen districts of five major states. The main objective of the paper is twofold. First, to review the status of revenue generation and expenditure responsibilities of the constituent ULBs. Second, to assess the magnitudes of their fiscal gaps by estimating the expenditure needs and revenue capacities and give some useful recommendations to reduce these gaps. Data on ULB finances for the financial year 2004-05 collected through surveys are used for the analysis. For estimation of expenditure needs the updated financial norms on the selected services specified by Zakaria Committee are used as benchmarks. For revenue capacity estimations Gross City Products (GCPs) are estimated from non-agricultural components of the District Domestic Products (DDPs). Revenue capacities are estimated by applying a tax-to-GCP ratio, which is higher than that existing in a ULB by a politically feasible margin, on the estimated GCPs. The main findings suggest that excepting five small ULBs in Hyderabad, the others are not in a position to cover their expenditure needs by their present revenue collections. All the UAs have unutilised potentials for revenue generations but with the exception of one UA i.e, Hyderabad, all the others would fail to cover their expenditure needs, even if they realise their revenue potentials. In all the UAs, except Chennai, bigger corporations are more constrained than the smaller ULBs. Besides, concrete evidence in support of the efficiency of parastatal agencies in sharing the burden of responsibilities cannot be established. The paper recommends better utilisation of 'own revenue' handles of the cities, by improved administration of the property taxes, implementation of other taxes, and collection of user charges. The option of state governments to allow the local bodies piggybacking a small proportion on their VAT collections can also be explored. Another way to reduce the fiscal gap would be to earmark a portion of the sales proceeds from land and housing by state governments sold through their development agencies for improvement in the infrastructure of the cities. The paper also recommends that the State Finance Commissions (SFCs) should develop appropriate norms for estimating expenditure needs based on which transfers from the state to local governments can be decided.Expenditure needs ; Revenue capacity ; Fiscal gap

Fiscal health of selected Indian cities

This paper provides an overview of the fiscal problems faced by five urban agglomerations in India, namely, Delhi, Hyderabad, Kolkata, Chennai, and Pune. It analyzes the fiscal health of the five urban agglomerations, quantifies their revenue capacities and expenditure needs, and draws policy recommendations on the means to reduce the gaps between revenue raising capacities and expenditure needs. The main findings suggest that, except for five small urban local bodies in Hyderabad, the others are not in a position to cover their expenditure needs by their present revenue collections. All the urban agglomerations have unutilized potential for revenue generation; however, with the exception of Hyderabad, they would fail to cover their expenditure needs even if they realized their revenue potential. Except in Chennai, larger corporations are more constrained than smaller urban local bodies. The paper recommends better utilization of"own revenue"through improved administration of property taxes, implementation of other taxes, and collection of user charges. It recommends that state governments should explore the option of allowing local bodies to piggyback a small proportion on their value-added tax collections. Another way to reduce the fiscal gap would be to earmark a portion of the sales proceeds from land and housing by state governments sold through their development agencies for improvements in urban infrastructure. The paper also recommends that the State Finance Commissions should develop appropriate norms for estimating expenditure needs, based on which transfers from the state to local governments can be decided.Public Sector Economics&Finance,Debt Markets,Municipal Financial Management,Public Sector Management and Reform,Banks&Banking Reform

Urban governance and finance in India.

Over 330 million people live in India's cities; 35 cities have a population of over a million and three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. India's cities are large, economically important, and growing. However, neither urban infrastructure nor the level of urban public services is adequate for current needs, let alone to meet growing demands. Dealing with this problem is a formidable challenge. Not only must adequate finance for the provision of services be found but it is critical to ensure that the money spent results in desired outputs and outcomes. To do so, local governance structures also need to be reformed and strengthened. This paper attempts to point the way towards some possible solutions by analysing urban governance and finance in India in the context of lessons drawn from fiscal federalism theory and experiences of governance institutions and financing systems both in India and around the world. No one system of urban governance is likely to work equally well for all urban local bodies. However, the paper identifies some key reforms required to realise both the constitutional intent to encourage citizen participation in urban governance and the economic and politically desirable goal of ensuring greater accountability of urban governments. For example, the paper draws attention to existing ambiguities in the assignment system and underlines the need to undertake activity mapping to ensure clarity as well as to make independent agencies significantly accountable to elected governments in urban areas. The paper also discusses a variety of ways of augmenting the resources of the municipal bodies in the country including essential reforms in the property tax system and adequate exploitation of user charges and fees for various services delivered as well as ways of strengthening and improving Central and State transfers to urban local governments. With respect to financing urban infrastructure, development charges should be used more effectively. More should also be done to utilise public lands more effectively. In addition, to a considerable extent capital expenditure requirements will have to be financed through borrowing so further development of the municipal bond market is important, as is more and more effective use of public private partnerships in some areas.India, Urban public finance, Urban governance, Intergovernmental fiscal relations, Property tax, Metropolitan areas, Infrastructure finance