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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.

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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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More about this item

Keywords

Fiscal responsibility legislation; federal relations; fiscal deficits; debt;
All these keywords.

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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