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

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Macroeconomic Policies for India's Growth Crisis

Instead of focusing on predetermined fiscal targets that are unlikely to be realised, India's fiscal adjustment should be calibrated to the recovery and a rebalancing of demand from the public sector to the private. This is best done by targeting the structural rather than the cyclical fiscal deficit. There should also be a sharp shift in the composition of the deficit from consumption to addressing supply-side bottlenecks through public investment in infrastructure. Unlike public consumption which can crowd out private demand, public infrastructure investment has higher fiscal multipliers and can crowd in private investment.

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