Reviving Fiscal Activism

In the book under review, Lekha S Chakraborty has made a serious attempt to reopen the debate regarding the macroeconomic consequences of fiscal deficit in the Indian context. Many in the policymaking circle in India believe that this is more or less a resolved debate: fiscal deficit is necessarily harmful for the health of the economy. However, this is an ongoing debate, for at least more than a century, whether fiscal deficit would necessarily cause crowding out of private investment or whether or not it would necessarily be inflationary. Chakraborty has mainly adopted empirical analysis as the tool to test these hypotheses, with the help of sophisticated econometric techniques like Hsiao’s asymmetric vector autoregression of the stationary time series data and so on.

There are total nine chapters in the 200-page book that include an introductory chapter on linking the work with part of the existing literature and a concluding chapter along with policy implications. In the second chapter of this book on fiscal deficit and macroeconomic activity of central and state governments, the long-term trends of various deficit-related indicators have been depicted and the subnational-level disaggregated data has been plotted separately for the pre- and the post-FRBM (Fiscal Responsibility and Budget Management) Act era.