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

Author

Listed:
  • Ricardo Hausmann

    (Harvard's Growth Lab)

  • 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

  • Ricardo Hausmann & Catriona Purfield, 2004. "The Challenge of Fiscal Adjustment in a Democracy: The Case of India," Growth Lab Working Papers 2, Harvard's Growth Lab.
    • Handle: RePEc:glh:wpfacu:2
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    File URL: https://growthlab.hks.harvard.edu/sites/projects.iq.harvard.edu/files/growthlab/files/_wp04168.pdf
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    Citations

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    Cited by:

    1. is not listed on IDEAS
    2. 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.
    3. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.
    4. Singh, Nirvikar, 2006. "State Finances in India: A Case for Systemic Reform," MPRA Paper 1281, University Library of Munich, Germany.
    5. 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.
    6. Rode, Sanjay, 2010. "Fiscal regulation and expenditure pattern in Maharashtra state," MPRA Paper 28836, University Library of Munich, Germany, revised 31 Dec 2010.
    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.
    8. Krishanu Pradhan, 2019. "Analytical Framework for Fiscal Sustainability: A Review," Review of Development and Change, , vol. 24(1), pages 100-122, June.

    More about this item

    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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