Central Finances in India- Alternative to Procrustean Fiscal Correction

This paper examines the trends in Central finances over a threedecadal period beginning from the 1970s. It is found that there is a lack of buoyancy in all the major sources of revenue of the Central Government. This calls for devising new methods of revenue mobilisation. Total expenditure of the Central Government as a proportion of the Gross Domestic Product (GDP) has not increased during the 1990s when compared to the 1980s. But the composition of expenditure has shifted more towards revenue expenditure. An emphasis on expenditure allocation with targeting at a detailed level and innovative tax reforms aimed at more revenue mobilisation are necessary to achieve qualitative fiscal correction, But this is often stymied for political economic reasons. Procrustean fiscal correction aiming merely at deficit targeting is not a very desirable method. The study finds that the main problem in achieving fiscal consolidation at the Central level is falling revenue and tax receipts during the 1990s. [CDS Working Paper 365, November 2004]