Journal of Indian School of Political Economy

Abhay Pethe ¹, Mala Lalvani ²

Affiliations
1 Urban Economic and Regional Development, Department of Economics, University of Mumbai, Vidyanagari-400098, IN
2 Department of Economics, University of Mumbai, Vidyanagari-400098, IN

Abstract

This paper provides a brief overview of the economic environment in Maharashtra including the socio-economic development of the state as a backdrop. Within this context, we assess and analyse the fiscal situation in Maharashtra. We, examine both, the relative performance vis-a-vis other major states of the Indian union and its temporal performance over a ten-year period. The power sector has been illustratively discussed as a bottleneck to growth of Maharashtra's economy, and hence adding to the fiscal woes of the state. The Cotton Monopoly Scheme and Sugar co-operatives have been discussed in this context. For the reform package to be comprehensive we would like to see policy measures being initiated at different levels:policies at the level of the state, which are financial and administrative in the main; policies that the central government must pursue in its dealing with the states and the third type of policy measures that are overarching in the sense that they concern the governments at all levels and deal with issues of capacity building and governance.

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Swaha Shome ¹, Mala Lalvani ¹

Affiliations
1 Department of Economics, University of Mumbai, IN

Abstract

This paper attempts to review the system of announcing Minimum Support Prices (for rice and wheat) from an economic and political perspective to assess its continued relevance. The study finds that Minimum Support Price does not seem to serve its stated objective of enhancing production; it has added to inflationary pressure; distorted cropping pattern in favour of rice and also adversely affected ground water resources. Added to this is the problem that it seems to have favoured a few States like Punjab and Haryana. On the political front, this paper seeks to examine the impact of elections on the support prices as well as on procurement of rice and wheat. We find convincing evidence to vindicate the hypothesis that policy decisions on support prices and procurement are guided by electoral considerations.

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Ajit Karnik ¹, Mala Lalvani ²

Affiliations
1 Middlesex University, Dubai, AE
2 Department of Economics, University of Mumbai, IN

Abstract

Fiscal responsibility legislation (FRL) has been seen as an important measure to control the fiscal profligacy of governments. While initially FRLs were enacted at the level of federal or central governments, it was soon realised, that for sustaining the health of government finances, such legislations were required for subnational governments as well. India has been no exception to this. This paper focuses attention on the impact of FRL in the state of Maharashtra which was enacted in 2004-05 in the wake of worsening public finances. While the finances of the government of Maharashtra have improved after 2004-05, we explore the factors that have led to this improvement. We do this by carrying out a time consistency check by performing rolling computations comparing the fiscal performance in the pre- and post-FRL time periods. An econometric exercise, using GMM estimation, is also employed for this purpose. We find that much of the improvement in the public finances of the state has been driven by transfers from the central government rather than through the effort of the state itself.

Keywords

Fiscal Responsibility Legislation, Federal Systems, Inter-Governmental Transfers JEL Code:E62, H75, H77.

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Abhay Pethe ¹, Mala Lalvani ¹

Affiliations
1 Department of Economics, University of Bombay, Bombay-400098, IN

Abstract

This paper-which is in a macro vein-looks at the key fiscal variables, viz., Revenue, Expenditure and the resulting Deficits. There has been an ongoing debate about the forecasting accuracy of especially the deflicits in the general context of credible policy announcements. These issues-always important-have assumed even greater importance, now with the onset of liberalisation in the Indian economy. In this paper, we look at the econometric (unit ischolar_main, co-integration) properties of the relevant series and estimate the Error Correction Model (ECM) to test the improvement in forecasts. We also carry out rolling regression to ascertain the coefficient behavior and finally use the tool of stochastic control to study whether the character of uncertainty is such as to facilitate learning and hence help to improve fiscal marksmanship. The paper ends with suggestions for further research in this rather interesting area.

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Mala Lalvani ¹

Affiliations
1 Department of Economics, University of Bombay, Vidyanagari, Bombay-400098, IN

Abstract

The Wagnerian hypothesis asserting that the development of a nation is accompanied by rising government expenditure has been variously interpreted and tested by economists the world over. In the present paper we make use of the non-parametric approach of Multiple Rank F test when checking the direction of causation in the different versions of the Wagnerian hypothesis which have evolved due to an imprecise statement of the hypothesis in its original form. On the basis of our present exercise there emerges a near unanimous conclusion that direction of causation runs from income to expenditure thus vindicating the Wagnerian proposition in the Indian context.

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