Fiscal Deficit

The Indian economy has been suffering from a persistent fiscal deficit for the last four decades. With the transition to coalition politics in the 1980s, the country’s political economy characteristics have significantly affected its fiscal policies and outcomes, but this has received scant attention in the literature. The impact of macroeconomic and political economy factors on India’s fiscal deficit between 1978–79 and 2016–17—a period when the country witnessed simultaneous economic and political structural transformations—has been investigated in this study. It finds evidence of a close link between electoral cycles and fiscal populism and between government fragmentation and fiscal profligacy. Additionally, it finds that a strong opposition does not necessarily mitigate the fiscal populism of incumbent governments.

Fiscal Consolidation, Budget Deficits and the Macro Economy by Lekha S Chakraborty, Sage, 2016; pp xix +197, ₹ 750.

India’s current fiscal rules target a 3% fiscal deficit for the central and state governments. Though states have largely adhered to their borrowing ceilings, subnational debt is proliferating. A significant reduction in subnational borrowing is required to stabilise the states’ debt around the desired level of 20% of gross domestic product. Symmetry should not be forced on central and state borrowing flows, given their widely divergent levels of debt stocks.

Examining the Centralised Online Real-time Electronic Public Distribution System reforms introduced by the Government of Chhattisgarh to understand the processes and conditions under which such reforms strengthen accountability and affect the delivery of public services, it is found that while earlier reforms have been successful, the contribution of CORE PDS has been useful but limited. A significant finding was that technological fixes for social protection programmes are only feasible insofar as they work within the political logic of the context in question. CORE PDS reforms could not address the issues of power imbalances between shop owners and cardholders which continue to shape interactions between them. Introducing transparency, accountability and quasi-market reforms in this context offered limited possibilities in what they could achieve.

Asian countries will need to cope with much greater complexity in both domestic resource mobilisation and in dealing with international tax issues. Fiscal laws and institutions will therefore acquire much greater importance. Capacity to use information technology in fiscal institutions in general, and tax administration and compliance in particular, will acquire greater urgency. Asian countries will also need to consider a regional forum to discuss tax issues and to share tax information. Indigenous fiscal research capability will also need to be strengthened.