No. 386

January 2017

Vol XCVII

ISSN 0019-5170

 

The Indian Journal of
Economics
 

University of Allahabad

Contents


 
 

A REVIEW ON RECOMMENDATIONS OF FOURTEEN FINANCE COMMISSION AND FISCAL AUTONOMY OF STATES IN INDIA


Pradeep Kumar Panda1

 

The FFC was appointed on 2nd January, 2013 under the chairmanship of Dr. Y. V. Reddy. The recommendation of the 14th Finance Commission to transfer 42% of Union taxes to states has been projected as a big boost to fiscal autonomy of states, marking a historical shift in the financial relations between the Centre and states. The analysis shows that while there has been a sharp jump in the ratio of unconditional transfers to states, it still falls short of what it was a decade ago. The fund transfers from Union to state governments are either tied (conditional) or untied (unconditional). Tied transfers indicate that the Union government exercises tight control over how these funds are used by the states, whereas untied funds can be used by the state government as it deems fit. It is because the FFC has recommended a sharp increase in the share of untied funds, that its decision has been welcomed. The recommendations of the FFC will confer more fiscal autonomy to states both on the revenue and the expenditure fronts, with states expected to get an additional Rs. 2 trillion in transfers from the centre in 2015-16. Besides the several categories under which it happens, what makes fund transfer far more complex is that certain funds lie between being entirely tied and entirely untied. However, for the sake of this analysis, the funds have been considered as either wholly tied or wholly untied. The famous figure of 42%, which has caught everyone's attention, refers to the share of states in the 'divisible pool' of Union taxes. The divisible pool is the part of Union taxes that has to be shared with the states. The share of the divisible pool in overall national taxes has hovered around 87% in the past five years. In absolute terms, in 2015-16, the states will get a total of Rs.5.24 trillion in tax devolution. Besides the tax devolution, other forms of untied transfers amount to Rs. 88,900 crore, taking the share of untied transfers in net transfers to 74%, a surge of 12 percentage points over last year's budget. The net transfers amount to 6% of GDP. The FFC outlined a very comprehensive assessment of the revenue and expenditure of States and the Union. A gig jump in the global share will give more freedom to States and Local Governments. FFC recommended grants direct to GPs and Municipal Governments with out any condition. FFC done away with State and Union Government Depts. of conditions for release and utilisation of LGs grants. They gave good proposals for augmentation of revenues and favourable compensations package to States regarding GST. FFC also recommended non-financial recommendations for promoting cooperative fiscal federalism. FFC recommendations paves the way for achieving cooperative federation. Issues for Discussion are Whether vertical Fiscal Imbalance reduced? Whether criteria for inter se distribution favourable for horizontal fiscal balance? Whether the financial recommendations promotes fiscal autonomy of states? Why the various state governments are disappointed by the FFC Award?

Key Words: Finance Commission, Fiscal Autonomy, Federalism, Devolution, Growth, Deficit, Challenges, Poverty, Inequality

There is and there can be no final solution to the allocation of financial resources in a federal system Pro. Maxwell

  1. School of Economics, University of Hyderabad, Email: pradeep25687@yahoo.co.in

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TRENDS IN PADDY PRODUCTION IN ANDHRA PRADESH


Srinivasa Rao Pasala1

 

Agriculture has long history of more than 5000 years and it has a backbone of Indian economy, mainly because of its large share of workforce employed and National Income in the country. But now less than 15 percent of India's national income comes from agriculture and close to 60 percent of India's labour force lives off agriculture. There is a little surprise in the fact that india’s rural population leads impoverished lives. Even though Government of India and other state Governments trying to improve the agriculture sector through different programmes and policies the production and productivity is increasing, but the growth rate is very meagre compare other sectors. This is because mainly lack of financial assistance, lack of infrastructural facilities, land transformation, usage of traditional methods, negligence on small farmers and marginal farmers across the country. The focus of the paper is to examine the changes and instability in area, production and productivity of paddy in Andhra Pradesh (Newly carved state of Andhra Pradesh) based on time series data during 1994-95 to 2013-14. The study found area, production and productivity has decreased during the study period. The compound growth rates of area, production and yield of paddy over the period svows positively significant. The study also confirms the magnitude of variability in production of paddy. The changes in area and productivity both was responsible for law variability in paddy of Andhra Pradesh. The percentage change over the years for area, production and productivity noted negative in the recent years in the study period. Instability in production is high in paddy crop during the study period. The yield effects the growth of production in paddy in Andhra Pradesh.

Key Words: : Change and instability, Compound Growth Rate, Decomposition Analysis.

  1. Assistant Professor, G.V.P. College for Degree and P.G. Courses(A), Visakhapatnam. Email: pasala.sreenu@gmail.com

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Constraints and Benefits of SHG Participation and Empowerment of Rural Women: Case Study in Some Backward Region in West Bengal


Soumyendra Kishore Datta1 and Tanushree De2

 

SHG activity is considered as greatly important for womens 'pursuit of non-farm work opportunity within or around the precincts of household ambience. It is through participation in SHG activity that women are supposed to attain self-dignity, independence in decision making in the sphere of the family, society as well as nation, can avail the scope of better training opportunities, bette link them with bank operation, communicate and press their views before social meetings and attain better socio-economic mobility. In this context a study is carried out in some backward region in West Bengal to ascertain the extent of constraints and benefits associated with SHG activity, to assess the degree of women mobility and empowerment that is usually associated with productive SHGs. The SHGs need to function well with utilization of group savings/loans on creating tangible asset] earning higher income for better sustenance of their families and ensuring their empowerment.

Key Words: :SHG, Women Empowerment, Constraints, Benefits

  1. Professor, Department of Economics, University of Burdwan, (W.B.). Email: soumyendra_d@rediffinail.com
  2. Research Scholar, Department of Economics, University of Burdwan, (W.B.). Email: shree_de2009@rediffmail.com

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Volatility in the Foreign Exchange Market and Role of Foreign Capital Investment in India: An Empirical Analysis


Karimullah1, Asheref llliyan2 and Jagdish Narain3  



Volatile behavior of exchange rate in India has been of crucial attention as the recent depreciation in the rupee has been a major challenge before the policy makers. The last decade marked a major shift in the economic policies of the government of India, with the introduction of liberal policy regimes that allowed greater freedom for foreign capital inflows into the economy. This paper seeks to examine the relationship (both short run and long run) between foreign capital investment behavior and exchange rate volatility in India for the period of2009-2014. To examine the short run as well as long run relationship, the Granger-Causality Test (G C Test) and Johannes's Co-integration test have been applied in the analysis, respectively. The impact of other possible factors affecting the exchange rate has been examined by applying regression models. Exchange rate is measured by Real Effective Exchange Rate (REER) and Foreign Direct Investment (FDI) has been used as the proxy of foreign capital investment in India. The resuIt suggests no short run as well as long run relationship between exchange rate volatility and FDI in India. It is found that there is no significant casualty but there exist a negative relationship between FDI inflows and exchange rate volatility.

Key Words: :FDI, Exchange Rate, Integration, Causality, long run relationship, Exchange Rate.

  1. Assistant Professor, Department of Economics, University of Allahabad, Allahabad Email: karim93@redifimail.com
  2. Senior Assistant Professor, Department of Economics, Jamia Millia University, New Delhi Email: ashraf.illiyan@gmail.com
  3. Professor, Department of Economics, University of Allahabad, Allahabad Email: jnpurwar@rediffmail.com

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GROWTH AND CHANGING STRUCTURE OF IPLOYMENT IN TAMIL NADU DURING THE 1990s/2000s


B.S. Prakash1 & A. Balu2
 


This paper analyses the phenomenon of jobless growth at sub-sectoral levels in the state of Tamil Nadu at one-digit level industry groups for the period 1983 to 2010. The changes in employment levels are studied by computing the employment elasticities. Then the value of employment elasticity is used to calculate the threshold level of the output growth rate. In order to see whether there is evidence of Lewisian labour transfer, the study examines labour transfer between sectors and percentage distribution of workers in the rural and urban areas. Comparable estimates are also presented for all India. The main finding is the non-acceptance of the hypothesis mentioned. The paper finds an acceleration of output growth in the post reform years accompanied by positive employment growth. The share of employment in agriculture in rural areas has declined more sharply, experiencing economic transformation in the post-reform years. The corresponding estimate for urban areas is the opposite i.e. the share of employment in agriculture has been increasing in the post reform years.

Keywords: Tamil Nadu, Jobless growth, Economic Growth, Employment creation

  1. Associate Professor (Economics), SOSS, IGNOU, New Delhi-110068
  2. Assistant Professor, Tagore College of Arts and Science, University of Madras, Chennai, India.

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DIVERSIFICATION OR EXPORT CONCENTRATION : A CASE OF INDIAN HIDE AND SKIN
 

Shally1 & Dr. Kuldeep Singh Rana2
 


Agriculture sector alone is not capable enough to provide employment opportunities. Therefore, there arose the need to explore new areas of employment generation. The solution to employment generation activity lies in leather industry development. India has the largest livestock population in the world. This livestock can be utilized as a development potential by India. After animal dies its skin can be stripped and is later converted into finished leather by tanning process. The exports of raw hides and skin will not only provide employment to both rural and urban youth but also help in earning huge foreign exchange. The present paper has tried to analyze the market power or share of various importing countries of raw hide and skin from India. The paper has further tried to stuay the Export Concentration Ratio of fifty five major countries of the world. If market power and export concentration are known then it will help in flaming trade policies or Export import policies by government of India.

Key words: Export, Diversification, Export Concentration, Market Power, Employment.

  1. Research Scholar, Department of Economics, Kurukshetra University
  2. Professor, Department of Economics, Kurukshetra University.

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Complaints Handling Mechanism - A study on Banking Ombudsman Scheme  


Dr. Kiran Singh1
 


As government pressing for the inclusion and banking sectors striving to increase its market share with the help of innovative products and services, banking transactions have increased manifold over the years. Such expansion has also increased the scope of increasing complaints. Thus customer satisfaction and customer loyalty have become major issues for banks in particular and banking industry in general. Thus, handling and more important the pace of handling the complaints becomes very important because if the complaintsrise and lie unsettled, the customers would feel dissatisfied and become less loyal.

To tackle this situation, RBI introduced Reserve Bank of India introduced the Banking Ombudsman Scheme in the year 1995 as the apex level grievance redressal mechanism akin to the Alternate Dispute Resolution Mechanism. This paper studies the performance of this scheme over the years. Data between the years 2008 to 2016 has been analyzed to conclude the performance. This paper suggests that, though the number of complaints received under this scheme has increasing trend over the period of time but OBs are also able to resolve the complaints at the same pace. This is also evident that rural population needs more awareness about this scheme.

  1. Assosiate Professor, Department of Economics, University of Allahabad, Allahabad Email: kiran_alld@yahoo.com

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Technological Strategies and Growth of Firms during Post Liberalisation: A Study of Indian Automobile Industry  


Tophan Patra1 and J.Manohar Rao2


The objective of this study is to examine the impact of government policies in transforming the technological strategies and growth of the firms and markets in the case of the Indian automobile Industry This study uses a two way fixed effect model to estimate the determinants of interfrm differences in growth of firms across two different industrial policy regimes namely, liberalisation policy (1992-2002) and Auto-Policy (2003-2010. The estimated results show that the firms with foreign equity participation (which represents intra-firm transfer of technology) has positive effect in achieving high rates of growth during liberalisation policy regimes (1992-2002) period But in recent years i.e., during Auto-Policy (2003-2010), technologr licensing and research and development have turned out to be positively significant indicating that larger automobile firms such as TATA, FML MSI etc. have consistently emphasized in-house R&D and technology licensing while selectively importing capital goods technology for improving their firm-specific capabilities.

Keywords: Automobile industry; Policy regimes; Technology capabilities; Competitiveness; Growth of Firms

  1. Assistant Professor (Contract), Center for Economics Studies and Policies, Central University of Bihar, Mohalla - Vinova Nagar, Gaya-823001, Email: tophanhcu@gmail.com, Mobile Number. 9837034535
  2. Professor, School of Economics, University of Hyderabad, Hyderabad-500046, Email: manoharraoj@gmail.com, Mobile No. 9440328879

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REGIONAL INDUSTRIAL DEVELOPMENT AND CONVERGENCE DEBATE


Kanika Bhatnagar 1  



Inter-regional inequalities in regional incomes have been thoroughly studied in India over different time periods by testing the convergence hypothesis. However, most of these studies have employed fixed panel data method to test the hypothesis. Problem with static panel is that it does not take into account the proper dynamics of the model and isn't able to handle the issue of endogeneity between the lagged dependent variable and the error term which leads to inconsistent estimators. Also, most of the studies have focused only on testing the hypothesis for total incomes of the Indian states. This paper leads the inquiry into testing the convergence hypothesis for 14 major Indian states for per capita gross state domestic product in industry (registered manufacturing sector) by employing the Arellano Bond Estimation method.

  1. Student, Department of Economics, JNU, New Delhi.

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MILES AND MILESTONES : FISCAL FEDERALISM AND THE FOURTEENTH FINANCE COMMISSION OF INDIA  


Ayushi Sarna1


The concept of 'fiscal federalism' or as WE Oates puts it. 'understanding which functions and instruments are best centralised and which are best placed in the sphere of decentralised levels of government'. has garnered huge importance of late. Nations are increasingly recognizing the need to share fiscal responsibilities and rectify fiscal imbalances among various levels of the government. The role of the Finance Commission in this regard becomes even more important in a diverse country like India where states differ on a multitude of criteria: from population to area, from geographical conditions to infrastructure availability and fiscal capacity.

This paper attempts to show hon" the recommendations of the 14th Finance Commission of India which tabled its report on 31st October 2014, can go on to strengthen fiscal federalism in India. This paper draws inferences from the works of Richard M. Bird." TM Thomas Isaac and Pinaki Chakraborty: Subrat Das and Sona Mitra. etc. in areas of fiscal balance, intergovernmental transfers and Centrally Sponsored Schemes, respectively. It aims to show how recommendations like increase in states' share in central tax revenue, increase in the flow of unconditional transfers, greater state responsibility in the implementation of Centrally Sponsored Schemes and more than a two-fold increase in grants for local bodies as compared to the 13th Finance Commission, among many other will enhance the fiscal autonomy of the states.

At its core, this paper is a trip to analysing the kind of challenges faced by the Fourteenth Finance Commission while making its recommendations. It is exciting to see how these recommendations can affect the development of the nation via affecting the fiscal capacities of the Centre, the States and local governments within them.

Key Words:Centrally Sponsored Schemes, Centre, States, Fiscal Deficit, Panchayats

  1. BA (H), Economics (2014-17), Indraprasth College for Women, University of Delhi, New Delhi.

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RELATIONSHIP BETWEEN SPOT AND FUTURES MARKETS OF SELECTED AGRICULTURAL COMMODITIES: AN EFFICIENCY AND CAUSATION ANALYSIS  


Dr. Velmurugan P.S1, Mr. Raghavendra R.H2, and Mr. Saravanan. A3


This study empirically examines the market which reacts first markets in India by assessing the relationship between the spot and future prices of agricultural commodities such as Soya bean, Ghana, Maize, Jeera and Turmeric for a period from January 2010 to March 2015 traded in NCDEX, Empirical results suggest the existence of long-run equilibrium relationships between futures and spot prices for all the 5 agricultural commodities that were taken for this study. Regression model pertaining to Lead-Lag relationship between Spot and Future markets suggests that for the commodities Maize, Jeera and Turmeric, both the spot and future markets price plays the leading role in the price discovery process and said to be informationally efficient and reacts more quickly to each other.

Keywords: Agriculture, Price discovery, Regression model, Futures, Cointegration.

  1. Fullbright Postdoctoral Fellow (USA) & Assistant Professor, Department of Commerce, School of Management, Pondicherry University (A Central University), Pondicherry-605014, Email: vehnuruganps@yahoo.com
  2. (Corresponding Author) Research Scholar, School of Management, Pondicherry University (A Central University Pondicherry)-605014, Email: raghavpondiuni@gmail.com
  3. Research Scholar, School of Management, Pondicherry University (A Central University Pondicherry)-605014, Email: saravanan14mcom@gmail.com

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CAUSAL RELATIONSHIP BETWEEN FOREIGN INSTITUTIONAL INVESTMENTS AND STOCK MARKET RETURN  


Dr. S. Yadav1 & Mr. Chirag Malik2


This paper addresses the issue 'Whether Foreign Institutional Investments cause returns or Foreign Institutional Investments are caused by returns? To seek answer to this question, Pair-Wise Granger Causality tests were applied one by one between BSE_RET, FIIP,FIIN, FIIS, RATIO_ FIIN, RATIO_FIIP and RATIO¬_FIIS. Unit root tests were also applied on all the seven series to check stationarity of the time series prior to Granger Causality Test. Time period selected for the study is April 2010 to March 2015. Results of the study showed that there is no causality between BSE Returns and Foreign Institutional Investments in India for the period under study.

Keywords: BSE Returns, Causality, Foreign Institutional Investments, Unit Root Tests.

  1. Associate Professor, Gitarattan International Bussiness School, Rohini, New Delhi-85 Email: dr.yadav31@gmail.com
  2. Assistant Professor, Gitarattan International Bussiness School, Rohini, New Delhi-85

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University of Allahabad