World Bank on Fiscal Adjustment in India

World Bank on Fiscal Adjustment in India M Govinda Rao R T Shand K P Kalirajan The World Bank's Country Economic Memorandum (CEM) on India this year reviews the progress of fiscal reforms at central and state levels. However, like in the past, the emphasis on reducing fiscal deficits rather than increasing public savings robs the analysis much of the relevance. Also, its assertion that there is no further scope for expenditure compression and additional deficit reduction should be achieved by increasing taxes is not based on sound empirical analysis. In fact, such a recommendation may signal a spate of spending on populist schemes as has been seen recently. Similarly, attributing fiscal problems at the state level to inadequate revenue efforts is not based on facts. This can not only encourage profligacy, but also may introduce additional sources of inefficiency.