The Challenge of Fiscal Adjustment in a Democracy: The Case of India

Ricardo Hausmann and Catriona Purfield

No 2004/168, IMF Working Papers from International Monetary Fund

Abstract: India's fiscal problem has deep roots in its federal fiscal system, where multiple players find it difficult to coordinate adjustment. The size and closed nature of the Indian economy, aided by its deep domestic capital market and large captive pool of domestic savings, has disguised the cost of fiscal laxity and complicated the building of a consensus on reform. The new fiscal responsibility act establishes a new rules-based system to overcome this coordination failure. To strengthen the framework, we recommend an autonomous scorekeeper and the extension of similar rules to the state governments as part of a comprehensive reform of the federal system.

Keywords: WP; government debt; central government; interest rate; Fiscal responsibility legislation; federal relations; fiscal deficits; debt; monitoring government fund; government experience; State election; debt relief; political system; government approval; channels half; government fund; electoral system; debt rise; government channels half; levels of government; Budget planning and preparation; Government debt management; Eastern Europe; Western Europe; Sub-Saharan Africa; Africa (search for similar items in EconPapers)
Pages: 30
Date: 2004-09-01
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Citations: View citations in EconPapers (12)

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Working Paper: The Challenge of Fiscal Adjustment in a Democracy: The Case of India (2004)
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