Working Paper No. 964 | July 2020
Analyzing the Fiscal Forecasting Errors of 28 States in IndiaBudget credibility, or the ability of governments to accurately forecast macro-fiscal variables, is crucial for effective public finance management. Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedures affect the fiscal behavior of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil’s technique, we analyze the fiscal forecasting errors for 28 states (except Telangana) in India for the period 2011–16. There is a heterogeneity in the magnitude of errors across subnational governments in India. The forecast errors in revenue receipts have been greater than revenue expenditure. Within revenue receipts, the errors are more significantly pronounced in the grants component. Within expenditure budgets, the errors in capital spending are found to be greater than revenue spending in all the states. Partitioning the sources of errors, we identified that the errors were more broadly random than due to systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 872 | August 2016
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.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 505 | July 2007
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.Download:Associated Program:Author(s):