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

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  • Mr. Ricardo Hausmann
  • Miss Catriona Purfield

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.

Suggested Citation

  • Mr. Ricardo Hausmann & Miss Catriona Purfield, 2004. "The Challenge of Fiscal Adjustment in a Democracy: The Case of India," IMF Working Papers 2004/168, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2004/168
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    References listed on IDEAS

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    6. Miss Catriona Purfield, 2004. "The Decentralization Dilemma in India," IMF Working Papers 2004/032, International Monetary Fund.
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    8. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1999. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 103-134, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.
    2. Singh, Nirvikar, 2006. "State Finances in India: A Case for Systemic Reform," MPRA Paper 1281, University Library of Munich, Germany.
    3. Valeriya Dinger & Sven Steinkamp & Frank Westermann, 2014. "The Tragedy of the Commons and Inflation Bias in the Euro Area," Open Economies Review, Springer, vol. 25(1), pages 71-91, February.
    4. Rode, Sanjay, 2010. "Fiscal regulation and expenditure pattern in Maharashtra state," MPRA Paper 28836, University Library of Munich, Germany, revised 31 Dec 2010.
    5. Krishanu Pradhan, 2019. "Analytical Framework for Fiscal Sustainability: A Review," Review of Development and Change, , vol. 24(1), pages 100-122, June.
    6. World Bank, 2004. "Stabilization and Fiscal Empowerment : The Twin Challenges Facing India's States, Volume 2. Detailed Report," World Bank Publications - Reports 16775, The World Bank Group.
    7. Singh, Nirvikar & Srinivasan, T. N., 2004. "Fiscal Policy in India: Lessons and Priorities," Santa Cruz Department of Economics, Working Paper Series qt8nx3v467, Department of Economics, UC Santa Cruz.

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