Fiscal Policy Issues for India after the Global Financial Crisis (2008-2010)
AbstractThe need for fiscal consolidation and sustainability is one of the key macroeconomic issues confronting Indian economy. This paper attempts to understand India's current fiscal situation, its likely future development, and its impact on the economy in the context of a weak global recovery from the current crisis. The impact of the global crisis has been transmitted to the Indian economy through three distinct channels, namely: the financial sector, exports, and exchange rates. The other significant channel of impact is the slump in business and consumer confidence leading to decrease in investment and consumption demand. The Indian government, to boost the demand, has announced several stimulus packages. However, there is not much room for further fiscal policy action as the consolidated fiscal deficit of the central and state governments in 2009-2010 is already about 11% of the gross domestic product (GDP). Any further increase in the fiscal deficit to GDP ratio could invite a sharp downgrading of India's credit rating and a loss of business confidence. The paper reviews the existing theories on the relationship between fiscal deficit and growth. It also analyzes the past trends and policy measures to understand the possible implications for economic recovery and long run growth in the Indian context. It also provides a long-term forecast of the fiscal deficit and public debt burden based on the past trends. Finally, the paper suggests a set of policy measures to get the Indian economy back on the path of sustained rapid and inclusive growth.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 249.
Length: 42 pages
Date of creation: 17 Sep 2010
Date of revision:
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indian public finance; global financial crisis; deficit forecasts; fiscal policies;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-FDG-2010-10-02 (Financial Development & Growth)
- NEP-MAC-2010-10-02 (Macroeconomics)
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- Supriyo De, 2012. "Fiscal Policy in India: Trends and Trajectory," Working Papers id:4751, eSocialSciences.
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