Emerging Trends of Central Government Deficit Indicators in India

Abstract

After the implementation of Fiscal Responsibility and Budget Management (FRBM) Act in India, a debate has been started among the economists as to the relevance of the deficit cutting strategy. The objective of the study is to analyses the emerging trends of central government’s major deficit indicators viz., fiscal deficit, revenue deficit and primary deficit in Indian economy from 1980-81 to 2015-16. The study period has been divided into three sub-periods i.e. pre-liberalisation period (from 1980-81 to 1990-91), post liberalisation period till FRBM Act (from 1990-91 to 2002-03) and the post Fiscal Responsibility and Budget Management (FRBM) Act (from 2003-04 to 2015-16) in reply to the worldwide financial crisis and succeeding return to a fiscal consolidation path. The exponential model has been fitted to the time series data for estimating compound annual growth rate (CAGR) of fiscal indicators. The compound annual growth rate has been estimated for The finding point out that the crisis led to the burgeoning of the government deficit to unsustainable levels and encouraged the government to initiate and adopt economic reforms during the study period 1980-81 to 2002-03 and also ensure that the deficit stood at more reasonable levels. On the other hand, the central government has been more proactive and has undertaken fiscal policy reforms to ensure a steady reduction in deficit indicators of central government leading to a more resilient economy after the implementation of FBRM. The study suggested that for fiscal reforms to succeed, continued high economic growth is a prerequisite which in turn requires strong social and economic infrastructure.