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Fiscal Policy Issues for India after the Global Financial Crisis (2008–2010)

Author

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  • Rajiv Kumar

    (Asian Development Bank Institute (ADBI))

  • Alamuru Soumya

Abstract

The 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.

Suggested Citation

  • Rajiv Kumar & Alamuru Soumya, 2010. "Fiscal Policy Issues for India after the Global Financial Crisis (2008–2010)," Finance Working Papers 23288, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:23288
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    File URL: http://www.eaber.org/node/23288
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    Cited by:

    1. Supriyo De, 2012. "Fiscal Policy in India: Trends and Trajectory," Working Papers id:4751, eSocialSciences.
    2. Kevin S. Nell, 2015. "The Complementary Nature Between Technological Progress and Capital Accumulation in India's Long-Run Growth Transitions," Metroeconomica, Wiley Blackwell, vol. 66(4), pages 565-605, November.

    More about this item

    Keywords

    Fiscal Policy; India; global financial crisis; fiscal consolidation; fiscal stability; Indian Economy;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • 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

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