Impact of fiscal deficit on growth and inclusion

Abstract

After 1970s India experienced with problem of fiscal deficit and the adverse fiscal condition cause to balance of payment crisis and internal instability. Therefore, India introduced new economic reform and fiscal consolidation reform to contain fiscal and trade deficit. In the initial stage of reform the problem of fiscal deficit brought under control and subsequent stage of reform fiscal position of nationn worsen. This fiscal situation makes India to embark ruled based fiscal policy and India adopted FRBMA 2003 rules to reduce Revenue and Fiscal Deficit. Unfortunately, this act was practice, as a deficit management tool for the government and deficits are considered to be the major factors affecting the growth process in the economy by contributing to inflation and increasing the debt burden leading to a greater resource drain on the exchequer in terms of interest payments. Hence, the fiscal target were set by FRBMA and both Union and State government inevitably reach target by 2003 fiscal rules. In order to reach FRBMA target, National and Sub-national government started reduce expenditure on social sector development. The social sector development is essential to reduce unsolved problem like Poverty and Unemployment, Regional Imbalance, unbalanced Sector Growth, Malnutrition, Gender Discrimination and Income Inequalities which are major challenge to achieve inclusive growth. Thus, this research paper seeks to make attempt to evaluate social sector expenditure after 2003 fiscal rules. It also tries to establish relation between social expenditure and human resource development. It suggest government to cut down expenditure on subsidies and interest payment to reduce non development revenue and capital expenditure and increase expenditure on social sector comprising education, health, medicine, housing and nutrition. The social sector development will enhance efficiency labour, per capita income and break vicious circle of poverty.