1. Jayanta Kumar Dwibedi jayantadw@rediffmail.com

2. Evaluation of state finance Benchmarking Individual indicators Composite index Identifying primary factors

3. Fiscal Performance Index (FPI) Individual Indices and the Indicator Variables Own Tax Earning Performance Index (OTR/GSDP) Own Tax Spending Performance Index (OTR/RE) Development Expenditure Performance Index (DE/NDE) Commitment Capacity Performance Index ( 1 -CE/RR) Committed Expenditure Performance Index ( 1 -CE/RE) Debt Performance Index ( 1 - Debt/GSDP)

4. Methodology ……..

5. State OTR/GSDP (2011-12) Andhra Pradesh8.15 Bihar5.12 Chhattisgarh7.52 Goa7.03 Gujarat6.78 Haryana6.83 Jharkhand5.47 Karnataka9.88 Kerala8.39 Madhya Pradesh8.36 Maharashtra6.91 Odisha6.21 Punjab7.83 Rajasthan5.81 Tamil Nadu9.38 Uttar Pradesh7.43 West Bengal4.58 Own Tax Earning Performance Index = [(8.15-4.58)/(9.88-4.58)]= 0.67 0.10 0.55 0.46 0.42 0.17 1.00 0.72 0.71 0.44 0.31 0.61 0.23 0.91 0.54 0.00

6. State Ranking (2002-03)Ranking (2011-12) Andhra Pradesh75 Bihar1614 Chhattisgarh22 Goa48 Gujarat89 Haryana34 Jharkhand1112 Karnataka11 Kerala1013 Madhya Pradesh96 Maharashtra67 Odisha1510 Punjab1316 Rajasthan1211 Tamil Nadu53 Uttar Pradesh1415 West Bengal17

7. What’s behind West Bengal’s Dismal State of State Finance? StateRE/GSDP Andhra Pradesh 13.8% Bihar 18.9% Chattisgarh 16.2% Goa 15.3% Gujarat 9.8% Haryana 10.4% Jharkhand 16.1% Karnataka 14.1% Kerala 14.6% Madhya Pradesh 17.0% Maharashtra 9.9% Odisha 16.1% Punjab 12.7% Rajasthan 12.9% Tamil Nadu 13.1% Uttar Pradesh 18.1% West Bengal 13.5% RR/GSDP 14.8% 22.8% 19.9% 16.8% 10.2% 10.9% 19.8% 14.8% 12.6% 20.5% 10.0% 18.6% 12.0% 13.5% 13.4% 20.1% 10.9%

8. What’s behind West Bengal’s Dismal State of State Finance? Analysis of Revenue Profile Central Transfers Own Revenue Generation CFC Transfers: Contribution Vs Share State Contribution (%)Tax share (%) Andhra Pradesh 8.97.2 Bihar 2.211.0 Gujarat 7.93.4 Karnataka 6.44.4 Kerala 4.32.5 Madhya Pradesh 4.16.9 Maharashtra 16.25.1 Odisha 3.05.0 Punjab 3.61.3 Rajasthan 4.85.7 Tamil Nadu 8.65.2 Uttar Pradesh 9.419.5 West Bengal 7.37.1 CT/GSDP (11-12) 4.8% 17.2% 2.5% 4.2% 3.3% 9.9% 2.3% 10.1% 2.7% 5.6% 3.1% 10.7% 5.8% OR/GSDP (11-12) 10.0% 5.6% 7.7% 10.6% 9.3% 10.6% 7.7% 8.5% 9.3% 7.9% 10.3% 9.4% 5.1%

9. Analysis of Revenue Profile…….. Dependence of Central Transfer Increased Significantly Year West BengalAndhra Pradesh Share of Own Revenue Share of Central Transfer Share of Own Revenue Share of Central Transfer 2003-200456.443.664.835.2 2011-201244.755.369.530.5

10. Own Tax Revenue Effort The actual tax collection-to-gross domestic product (GDP) ratio is generally interpreted as a measure of tax effort and used as the basis for cross country tax comparison. A positive relationship between tax to GDP and per capita income.  Tax structures are progressive.  Demand for government services is income–elastic, so the share of goods and services provided by the government is expected to rise with income. The tax-to-GDP ratio could provide a “completely distorted” picture due to different economic structures, institutional arrangements and demographic trends.

11. Own Tax Revenue Effort……. Tax effort by Income Groups (cross country), 1994-2009 OTR/GSDP* is generally interpreted as a measure of tax effort and used as the basis for cross state tax comparison. CFCs and others (in case of devolutions) also used this index to capture fiscal prudence of states. * Adjusted

12. Splicing……….

14. Tax Effort of Indian States…………. OTR-GSDP and per capita income 2011-12

15. Tax Effort of Indian States…………. Estimation of taxable capacity and tax effort: Regression analysis using panel data(17 GCS -11 years)…… Taxable capacity- Predicted tax revenue that can be estimated with the regression Tax efforts- The ratio between actual tax collection and the predicted taxable capacity.  A value >1 indicates High Tax Effort Low collection does not necessarily imply low effort

16. Tax Effort of Indian States…………. Estimated equation……. R-sq: within = 0.9066 between = 0.9408 overall = 0.9255 ------------------------------------------------------------------------------ PCOTR Coef. Std. Err. t P>|t| -------------+--------------------------------------------------------------- - PCI.088689.0021904 40.49 0.000 CONS -.3659232.1059625 -3.45 0.001 -------------+----------------------------------------------------------------

17. Tax Effort of Indian States…………. Low Tax Efforts……… West Bengal: 64% Jharkhand: 74% Odisha: 85% High Tax Efforts…….. Karnataka: 132% Tamil Nadu: 119% Madhya Pradesh: 116%

18. Consumption as Tax Base…….. Consumption and tax collection? 85-90% of state’s own tax collection are taxes on commodities and services(80 % of that from VAT) Being indirect in nature they are expected to be more closely related to consumption than income.

19. Consumption as Tax Base…….. Per-capita Consumption and tax collection

20. Consumption Behaviour and Tax Collection? A conceptual framework……… A Counterfactual exercise: VAT on Petro Products (2011-12) With GSDP as tax base With sale of petro products as the tax base Potential Revenue (with AP’s tax effort) (Rs. Crore) 7758.55372.1 Actual collection (Rs Crore) 4227.3 Realisation (%) 54.5%78.7%

21. Consumption Behaviour and Tax Collection? Important Consumption items like per-capita petro sates, per-capita electricity consumption, number of registered vehicles in West Bengal is significantly lower than comparable states like Andhra Pradesh. These consumption items are important for tax generation. West Bengal’s figures are surprisingly lower than states with lower per- capita income (than West Bengal ); like Rajasthan, Chattisgarh and Odisha. Informalisation/Underreporting/Corruption?  All of them?

22. Thank You !