Vol. 3 No. 4 (Jul-Sep) (2022): Indian Public Policy Review

We review arguments for CBDC issuance in India. These include facilitating payments, enhancing financial inclusion, enabling the central bank and government to retain control of the payments system, facilitating cross-border transactions, reducing dependence on the dollar-dominated global payments system, and providing an encompassing platform for digital financial innovation. We then compare progress in India with other countries. In setting an end-2022 target date for issuance, India is in line with the other BRICS, but not with other countries with comparable levels of per capita GDP, which have been more reluctant to commit to a date. Nor is it in line with other countries with comparably independent central banks, which have been more cautious about setting a deadline. Finally, we sketch a roadmap and timeline for India’s CBDC project going forward.

A robust Public Financial Management (PFM) system contributes to enhanced accountability and transparency in governance, and is associated with efficient and equitable public service delivery, poverty reduction, and economic growth. India’s existing PFM framework is scattered across a wide range of provisions and is riddled with inconsistencies. There is a need to bridge the gap between the high-level PFM structure contained in the Constitution, and the operational details found across guidelines, rules, regulations, and manuals at the Union and State levels. In this context, this paper looks at the key areas in which India needs PFM reforms, building on the provisions of a draft PFM law prepared by an expert group and cited by the Fifteenth Finance Commission. These include fiscal responsibility, the Annual Budget, financial management, reporting and accounting, and legislative and executive oversight. We study the existing frameworks in these areas and propose reforms, drawing from international experience and best practices, with the aim of charting a comprehensive way forward for PFM in India.

The paper analyses some vital aspects of India’s flexible inflation targeting (FIT) regime, whose first-term performance was evaluated by the RBI in 2021. The absence of negative shocks, collapse of international commodity prices at the time of its introduction, and decelerating growth are pointed out in this article as notable contributors to achieving inflation target than the change of regime as claimed by the RBI. The success in anchoring inflation expectations is contestable in the light of their rigid persistence, association with fuel prices and upward drift with resurgence of inflation in recent times, indicating that the task remains unaccomplished. The post-FIT rise in output volatility is highlighted, raising the question if increased inflation focus contributed to slower growth. Macroeconomic stability ascribed to credibility gained under FIT is similarly shown without basis as indicated by oil-price spikes and exchange rate pressures. Overall, FIT’s performance awaits further testing, especially over different economic cycles.

In his new book, How China Sees India and the World, scholar and former diplomat Shyam Saran argues that an instrumental approach to history has been a hallmark of Chinese political life through the centuries. Competing with a rising Communist China today requires the world to actively contest Beijing's historical narratives.

Democracy across the world has witnessed the evolution of the electoral system. The First-past-the-post (FPTP) system practiced in India has certain disadvantages, such as disproportional representation. This paper analyses the election outcome in FPTP electoral system in a diverse society like India using constituency-level information for the Lok Sabha election. I examine how social diversity, religious diversity, and fractionalization affect the outcome in the FPTP system. The fractionalization index for religious diversity, polarization index for religious polarization, and Herfindahl–Hirschman Index for vote concentration are formed for Lok Sabha constituencies to understand the impact of diversity on vote concentration as well as vote share of winning candidates. Further regression analysis is done where state-specific and time-specific effects are controlled. It is found that fractionalization i.e. religious diversity affects the vote concentration negatively. It is also found that on average the vote concentration for SC/ST reserved constituencies is lower than general constituencies. This suggests that religious diversity reduces the vote concentration which further leads to disproportionality. It is important to think of ways to provide the space for the parties which are getting votes but not getting seats in Lok Sabha, especially for reserved constituencies.