Fiscal Consolidation: The Indian Experience

Abstract

Fiscal consolidation methods have always been under lens since their origin with newer and more stringent way of monitoring them. Still the elected policymakers tend to find a way to manage them so as to not to lose the externality benefits of higher fiscal deficits in term of electoral gains. This paper analyses the fiscal adjustment programme adopted by the central government of India since the inception of FRBM act 2003. A comparison of the consequences of fiscal adjustment on public finance under discretionary phase of economic reforms with the initial rule phase has also been discussed in this paper. Analysis indicates that fiscal reforms has led to consolidation of public finances in India but some crucial challenges remain i) setting up of Fiscal Council ii) not to use creative accounting to maneuver accounts to meet the fiscal targets iii) implementing countercyclical fiscal policy in totality and iv) starting a countercyclical fund. JEL Classification: E 62, E 60