Fiscal Policy and Growth

Can fiscal policy play a key role in the revival of the economy? The problem is that this question has had to be posed in the context of deteriorating fiscal balances of the centre and the states, whose combined deficit is today slightly worse after 10 years of reform. The states' gross fiscal deficit has deteriorated significantly. It is absolutely necessary, therefore, for the centre to be seen to be fiscally prudent, which will be a signal to the states of the centre's seriousness in regard to fiscal management. A contrary signal will undermine any restraint that the centre can bring to bear on the states.