FISCAL SUSTAINABILITY AND ECONOMIC GROWTH: A CASE STUDY OF UTTAR PRADESH IN THE 21ST CENTURY

Abstract

Fiscal sustainability refers to the maintenance of public finances within an affordable and serviceable limit by rationalising debt and deficits within tolerable limits. India, since the time of independence has been taking assistance of debt and deficits to meet its shortages in revenue for the purpose of development and growth. For quite a long time, the concept of fiscal prudence was not given due importance of its role in ensuring long-term sustainable growth. It was only after the major economic crisis of 1990s, that several reforms were initiated targeting at longer duration targets. As a part of series of these reforms, FRBM Act was implemented in 2003 to keep a check on the fiscal indicators of the country especially the revenue deficit, fiscal deficit and debt-GDP ratio to contain the situation of growing fiscal indiscipline. The act was implemented both at the Centre and State level. It has almost been a decade and a half since its implementation. In the course of this duration, some states focused more on the growth parameters while other states focused more on the fiscal sustainability which in turn will initiate growth according to the ideology behind it. The present study specifically makes an analysis of the policies adopted by the state of Uttar Pradesh to establish fiscal sustainability. An investigation has been done to evaluate whether fiscal sustainability measures have adversely affected the growth of the state? The study concludes that although Uttar Pradesh is the most populous and one of the largest state, area wise, it could not create an investment atmosphere for investors due to lack of infrastructure and other facilities because of its focus on fiscal sustainability. KEYWORDS: Fiscal Sustainability, FRBM Act, debt-GSDP ratio, fiscal deficit, interest payments.