India : Why Fiscal Adjustment Now

Pinto, Brian ; Zahir, Farah

World Bank: Washington, DC

关键词: ADMINISTRATIVE COSTS;    AGRICULTURE;    BAILOUT COSTS;    BALANCE OF PAYMENTS;    BALANCE SHEET;   

DOI  :  10.1596/1813-9450-3230
RP-ID  :  WPS3230

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

India's growth performance has beenimpressive over the last two decades. But its sustainabilityhas been in question, first with the 1991 fiscal-balance ofpayments crisis (BoP), and then again after 1997/98, whenfiscal deficits returned to the 10 percent of GDP range andgovernment debt grew. This paper analyzes the deteriorationin India's public finances and presents evidencesuggesting that, in the absence of a fiscal adjustment, lowinflation and high reserves may have been pursued at theexpense of long-run growth and poverty reduction. Resolvingthis inflation-external vulnerability-growth policy trilemmarequires fiscal adjustment. In making its case, the papershows, first, that fiscal fundamentals have weakened after1997/98 even when compared with the pre-1991 crisis period.This has continued in spite of the recent record lows ininterest rates. Second, the fiscal stance is not conduciveto long-run growth and poverty reduction because capitalspending has been cut to accommodate higher interestpayments and other current spending, with expenditures onthe social sectors stagnating. Third, without a fiscaladjustment, the debt burden is likely to reach unmanageablelevels by the end of the Tenth Plan period. In contrast, aphased adjustment beginning now and focusing on a relativelysmall set of reforms is likely to improve debt dynamicssubstantially over the same horizon, while also promotingfaster growth and poverty reduction.