ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Consolidation and Inclusive Growth: The Finance Commission Approach

The recommendations of the Thirteenth Finance Commission, made in the context of the fiscal stress that was experienced during the global crisis, include relaxation of fiscal targets for purposes of macrostabilisation, preparation of a fiscal adjustment programme for 2010, raising both public and private investment by creation of fiscal space for government capital expenditure and ensuring fiscal viability. The commission's emphasis on allowing for macrostabilisation as a means of raising productive investment is unexceptionable, so too are many of the reforms that have been suggested. However, the lack of an adequate analytical framework has made the overall recommendations less than satisfactory. This inadequacy is reflected in a failure to identify the basic conditions that call for anti-recessionary measures and their optimal combination, a neglect of distortionary and gdp-reducing effects of subsidies, viewing outlays on human resource development as current rather than capital expenditure, a neglect of conditions governing crowding in and crowding out of investment, treatment of disinvestment as part of investible resources and the clubbing of domestic and external debt and of debt held by the public and the Reserve Bank of India.

THIRTEENTH FINANCE COMMISSION

Fiscal Consolidation and Inclusive Growth: The Finance Commission Approach

Mihir Rakshit

The recommendations of the Thirteenth Finance Commission, made in the context of the fiscal stress that was experienced during the global crisis, include relaxation of fiscal targets for purposes of macrostabilisation, preparation of a fiscal adjustment programme for 2010, raising both public and private investment by creation of fiscal space for government capital expenditure and ensuring fiscal viability. The commission’s emphasis on allowing for macrostabilisation as a means of raising productive investment is unexceptionable, so too are many of the reforms that have been suggested. However, the lack of an adequate analytical framework has made the overall recommendations less than satisfactory. This inadequacy is reflected in a failure to identify the basic conditions that call for anti-recessionary measures and their optimal combination, a neglect of distortionary and GDP-reducing effects of subsidies, viewing outlays on human resource development as current rather than capital expenditure, a neglect of conditions governing crowding in and crowding out of investment, treatment of disinvestment as part of investible resources and the clubbing of domestic and external debt and of debt held by the public and the Reserve Bank of India.

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