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The Challenge of Fiscal Adjustment in a Democracy: The Case of India

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Author Info
Ricardo Hausmann
Catriona M. Purfield

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Abstract

India's fiscal problem has deep roots in its federal fiscal system, where multiple players find it difficult to coordinate adjustment. The size and closed nature of the Indian economy, aided by its deep domestic capital market and large captive pool of domestic savings, has disguised the cost of fiscal laxity and complicated the building of a consensus on reform. The new fiscal responsibility act establishes a new rules-based system to overcome this coordination failure. To strengthen the framework, we recommend an autonomous scorekeeper and the extension of similar rules to the state governments as part of a comprehensive reform of the federal system.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/168.

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Length: 29 pages
Date of creation: 15 Sep 2004
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Handle: RePEc:imf:imfwpa:04/168

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Keywords: Fiscal management ; India ; Debt ; Fiscal reforms ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier. [Downloadable!] (restricted)
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  2. Ernesto H. Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," RES Working Papers 4110, Inter-American Development Bank, Research Department. [Downloadable!]
  3. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Working Papers 6358, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank. [Downloadable!]
  5. Ila Patnaik & Ajay Shah, 2005. "Interest-rate risk in the Indian banking system," Risk and Insurance 0501003, EconWPA. [Downloadable!]
  6. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April. [Downloadable!] (restricted)
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  8. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August. [Downloadable!] (restricted)
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  10. Catriona M. Purfield, 2004. "The Decentralization Dilemma in India," IMF Working Papers 04/32, International Monetary Fund.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Singh, Nirvikar, 2006. "State Finances in India: A Case for Systemic Reform," MPRA Paper 1281, University Library of Munich, Germany. [Downloadable!]
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