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Options and Strategies for Fiscal Consolidation in India

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  • Mr. Sampawende J Tapsoba

Abstract

The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax. Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation.

Suggested Citation

  • Mr. Sampawende J Tapsoba, 2013. "Options and Strategies for Fiscal Consolidation in India," IMF Working Papers 2013/127, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2013/127
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    References listed on IDEAS

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    Cited by:

    1. Kalaš Branimir & Andrašić Jelena & Pjanić Miloš, 2016. "Aspect of Fiscal Consolidation: Evidence from Serbia," The European Journal of Applied Economics, Sciendo, vol. 13(2), pages 21-29, October.
    2. Acharya, Rajesh H. & Sadath, Anver C., 2017. "Implications of energy subsidy reform in India," Energy Policy, Elsevier, vol. 102(C), pages 453-462.
    3. Rahul Anand & Mr. Volodymyr Tulin & Naresh Kumar, 2014. "India: Defining and Explaining Inclusive Growth and Poverty Reduction," IMF Working Papers 2014/063, International Monetary Fund.
    4. Iyanatul Islam, 2018. "Fiscal Consolidation, Growth and Employment: International Evidence and Implications for India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 61(1), pages 105-130, March.
    5. Muneesh Kapur & Rakesh Mohan, 2014. "India’s Recent Macroeconomic Performance: An Assessment and Way Forward," IMF Working Papers 2014/068, International Monetary Fund.

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