Costs of Stabilising the Economy

India is following a three-year, two-step strategy: slash aggregate demand in the first half, and then address the supply side through structural reform. As part of the former, investment from the central government budgetary resources has been relatively reduced. We estimate that had the investment been maintained at the historical average rate relative to gross domestic product, and one-third of the additional output were collected as tax, the entire budget deficit of 1993-94 could be covered.