India's Fiscal Reform: Some Signposts

Abstract

This paper by Bagchi seeks to review the magnitude and quality of fiscal consolidation that has taken place in India in the process of economic reforms and identify the tasks ahead. The broad conclusion is that while there has been some notable success in reducing the deficits of the centre, the fiscal situation marked by large revenue deficits remains fragile. Fiscal correction has also had an adverse impact on government's capital spending. For the growth momentum to pick up⁄ budgetary support for investment in infrastructure must be stepped up and government expenditure restructured to provide larger allocation for health and education. If these are to be achieved while adhering to norms of fiscal prudence⁄ the revenue-ratio would need to be raised by nearly 4 per cent of GDP. That would call for massive efforts towards augmenting tax and non-tax revenues at both levels of government. Some fundamental institutional reforms will also be needed such as in the system of federal transfers⁄ the judicial system⁄ and the administrative organization and methods.