Budgetary aspects of stabilization and structural adjustment in India: the painful road to a sustainable fiscal-financial-monetary plan
This study updates and extends to the period 88/89-92-93 our earlier analysis of the public finances of India. With the collapse of the communist regimes in the former Soviet Union and Eastern Europe, India found itself, by early 1991, in the unenviable position of having possibly the most over-regulated economic system in the world. In addition, there had been, during the eighties, a break with India''s long tradition of fiscal prudence. Following the foreign exchange crisis of 1991, the government implemented a package of restrictive fiscal and monetary measures and a, by Indian standards, ambitious program of structural adjustment and reform of the Union budget, of regulation and licensing, of the domestic financial sector and of international trade and international financial relations. As regards the magnitude of the fiscal corrections that were undertaken, our conclusion is that it was insufficient. Continuations of past and present expenditure and revenue patterns would result in a steady increase in the public debt-GDP ratio and in the discounted value of the public debt. Inflationary financing of the "primary" gap is not a viable option. We calculate that a further permanent increase in the public surplus of about four and a half points of GDP is needed to achieve the modest objective of stabilizing the public debt-GDP ratio. On the reverse side, this necessary increase in the primary surplus is best achieved by expanding the direct and indirect tax bases and improving tax administration, collection and enforcement. On the expenditure side, reductions in the general government wage bill (by reductions in employment rather than by public sector wage cuts), in fertilizer subsidies, in some (but not all) food subsidies and in operating and capital subsidies to public sector enterprises are recommended. For efficiency reasons and to support the proposed expenditure cuts, overwhelming majority of the public sector enterprises should be cut off from the further government subsidies and be privatized or corporatized.
|Date of creation:||Jun 1995|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC
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.:
- Francis X. Diebold & Glenn D. Rudebusch, 1990.
"On the power of Dickey-Fuller tests against fractional alternatives,"
Finance and Economics Discussion Series
119, Board of Governors of the Federal Reserve System (U.S.).
- Diebold, Francis X. & Rudebusch, Glenn D., 1991. "On the power of Dickey-Fuller tests against fractional alternatives," Economics Letters, Elsevier, vol. 35(2), pages 155-160, February.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991.
"Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?,"
Cowles Foundation Discussion Papers
979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Tom Doan, . "KPSS: RATS procedure to perform KPSS (Kwiatowski, Phillips, Schmidt, and Shin) stationarity test," Statistical Software Components RTS00100, Boston College Department of Economics.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Phillips, Peter C B, 1988.
"Regression Theory for Near-Integrated Time Series,"
Econometric Society, vol. 56(5), pages 1021-43, September.
- Alessandro Missale & Olivier Jean Blanchard, 1991.
"The Debt Burden and Debt Maturity,"
NBER Working Papers
3944, National Bureau of Economic Research, Inc.
- Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:20722. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)
If references are entirely missing, you can add them using this form.