I have three major areas to discuss with you. First your early recollection that you may have of NIPFP, second, the period when you served as chairman and then the third part on the institute going forward.
The idea of setting up that institution came to Dr. Raja Chelliah when he was in the International Monetary Fund (IMF) and as he was coming back to India, he pursued the idea with the government. My own association with Dr. Chelliah goes back to 1964, when I returned from the US. I went to University of Rajasthan at Jaipur as a reader in Economics. At that time, Dr. Chelliah was already there as a Professor. Therefore, we sort of knew each other quite well and that continued for a very long period.
I had moved out of Jaipur within a year of joining and I went to ISI Delhi and then back to the US. But we continued to maintain contacts. I met him several times when he was in Osmania University.
The point that I wish to make is that the idea of setting up a Public Finance institute was in the mind of Dr. Chelliah for quite a long time. After all, he was one of the leading experts in the area of public finance and his own doctoral thesis was also on public finance. Therefore, he wanted to do it. We had some discussions when he was thinking over the idea and the idea of setting up an institution was also strongly supported by C. Subramanian, who was Finance Minister at the time. Then in the late 1970s, it finally came to shape.
I think the one big question that arises when you setup an institution with government help is the independence that the institution will have in terms of articulating its views or the views of the faculty which form part of the institute. Therefore, it should not become a subordinate institution to the government and one has essentially to draw a very fine line between the government and the institution.
If the institution is looked upon as a subordinate institution then the views expressed by the faculty do not carry much weight with others.
I believe that C. Subramanian when he was the Finance Minister played an important role and that he was willing to have an institution whose faculty can express the views which they consider relevant.
But at the same time, public finance as a subject is closely associated with the government. Therefore the support to set up such an institution from the government was essential and that support was forthcoming.
I recall initially the work immediately began for the indirect tax committee because Dr. Chelliah was a member of the indirect tax committee and I was still in academia.
At that time there were several important issues. There were many issues on the revenue side, the expenditure side and the borrowing side. I think these are the three large and important parts.
On the expenditure side it is much more than public finance because if you really ask what is the quantum of government expenditure and which areas should get precedence over others in terms of expenditure it is not simply a pure public finance issue. It is a philosophy of the government — how much to spend and where to allocate.
So basically there is a philosophy behind what goes into budgeting — the classic gun versus butter debate. The point on the revenue side was the attempt to raise a larger quantum of revenue by raising the tax rate.
I think it was to Dr. Chelliah’s credit that he talked about a wider base with lower rate. It is not always possible to raise tax revenue by raising the rate because that can lead to black money and evasion.
Dr. Chelliah strongly believed in widening the base and lowering the rate and thereby raising the revenue. Direct tax and indirect tax had their own issues associated with them.
Later the value added tax in the indirect tax system was also an idea that he propagated.
I once asked him about the title of the institute — National Institute of Public Finance and Policy. I asked him what the policy part meant. He said, why not policy? The idea was that you were looking at policy matters also.
With government, this relationship existed right from the beginning because the idea of setting up the institute was that it should provide the necessary support to the government.
This can raise questions when research conclusions may not sit comfortably with the government. But as long as the government has an open mind, even if they differ from the conclusions of a study they can make up their own mind.
There are two aspects of the interface with government — finance and intellectual inputs. On intellectual inputs the journey was easier, particularly because the government was keen on introducing reforms.
Most of the faculty members including Dr. Chelliah were really part of the team which introduced the reforms. They did the research work and elaborated the framework which must go with the reforms.
In the early period there was not much difference between the government and the institution, but there was still an open mind because details always needed further study.
Since the government recognized the value of the work being done, they supported the institute.
The time has come for greater interaction with the state governments because their role has become very important. The institute should take up issues like freebies and policies that are more pronounced at the state level.
It should provide databases and experiences across different states so that policies can be studied and evaluated.
More intensive analysis of India’s experience with GST is also needed — both with respect to the content of GST and its institutional framework.
State governments often say they have lost independence under GST. Technically both the centre and the states share decision making through the GST Council.
But further study is needed to make GST acceptable to both the centre and states. Another issue is that GST revenue buoyancy is less than one and revenues appear to have stagnated.
NIPFP should study international experiences and identify what improvements can be made.
The institute should also widen its scope in terms of public economics and analyze the macroeconomic implications of government fiscal actions.
Macroeconomic modelling should become an integral part of public finance research and forecasting.
Training programs should address broader issues in public finance, particularly for officers of the Indian Economic Service and the Statistical Service.
Currently we do not teach an integrated macro version of public finance. Developing a broader scope of public finance training should therefore become an objective.
Do you recall any early associations with NIPFP and its initial years after it was set up?
I think Dr. Chelliah came back to India sometime in the early 1970s. At that time I was with the Planning Commission, so we all welcomed it because one of the lacunae in the Planning Commission was that we did not really have the level of expertise that we should have in the area of fiscal policy and taxation.
Dr. Chelliah came with such a reputation and long experience at the IMF that the creation of this independent institution was very important to him. Therefore it was his initiative, as is my recollection. After he came back, he wanted to create this institution.
At that time the Ministry of Finance also saw the initiative as a necessity. I think the Finance Minister then, Mr. C. Subramanian, welcomed the initiative. The Planning Commission Deputy Chairman was Mr. Haksar and he became the first chairman of the institute.
So it was really a great start. It was a wonderful thing that happened and somebody like Dr. Haksar, who was the Deputy Chairperson of the Planning Commission, also became the Chairman of the institute.
It gave access to policy making and also gave the institute independent prestige. Even during the emergency period, that kind of independence and prestige was maintained because of the founding members.
I am happy to say that NIPFP has maintained it over the years. The institute continues to maintain that legacy and its intellectual by-line, and still continues working, in whatever zigzag way, for the government.
So I think we have lived up to the vision and I am very proud of it.
The first thing was the people who were at the institute. Pulin Nayak was there initially, M.C. Purohit and then later Amaresh Bagchi. Also, you had successively great Directors and the Governing Body also had very good and solid people with leadership and deep knowledge of both macroeconomics and public finance.
Dr. Chelliah himself was involved in many studies, particularly on taxation. I think Dr. Chelliah was both technical and a thinker. He had a global perspective and knowledge, and coming from the IMF he knew the areas that required work.
I remember even while I was in the Ministry of Commerce they helped us. I recall I did a paper on duty and rate structure.
Among the major contributions toward tax policy advocacy and later reform for integration and conceptualization of GST were by Dr. Chelliah and Dr. Bagchi.
One development that happened, as I recall, was that we decided to have a Vice Chairman. That was the first time. I suggested that we have Sumit Bose. He was Finance Secretary and was also in the Finance Commission.
He had wide experience at both the centre and state level and it was good to have him in the institute.
I would say the other pillar of NIPFP is the training and seminars that happen in the institute. We had several distinguished academicians visiting the institute.
The training part, I believe, is mostly for the civil services. But the training programs that NIPFP conducts are because of the reputation it has built right from the start.
I think we should continue and have a wider engagement with states. We should step it up and make it much more detailed and rigorous so that this legacy continues, because building that knowledge base is very important.
More subjects can also be included or perhaps more seminars conducted. The institute still does not have a PhD program, so most of the academic interactions can come from seminars and conferences.
One area where greater interaction is required is with the RBI, to create models that examine macro issues of taxation, money, debt and related policies.
Another area is the internationalization of fiscal policy. Open economy macroeconomics type work can be very interesting and can be jointly done with the RBI.
The institute can also host visiting scholars and build stronger international linkages.
Issues such as how to handle business cycles are important areas of work. Another area that needs more empirical work is GST. We have had many changes, but it still remains complex and incomplete.
NIPFP should take up more work in this area.
For most of my visits, I was there for conferences. But my personal favourite is the NIPFP Library. It has a wonderful collection of books and the latest journals.
Perhaps it can be developed into something like a National Library. Maybe it can even be recognized as an institute of national importance, which could help develop it further.