Political Economy of Government Finance in India

Abstract

This article analyzes important developments in Indian public finance from developmental, redistributive, and political economy perspectives. The detailed analysis of policies relating to tax, expenditure, deficits, and debt brings out the failure of these policies in achieving their objectives, which to a considerable extent is attributable to the constraints posed by political economy developments and particularly, the influence of special interest groups. The analysis of tax policy brings out the low revenue productivity on the one hand and severe distortions caused by it. The analysis of expenditure policy shows the proliferation of subsidies and transfers crowding out productive expenditures on social and physical infrastructure. The analysis of deficits and debt shows the inability of the central government in calibrating sustainable fiscal policies and underlines the need for an independent fiscal institution to monitor the budgetary process and report to the Parliament.