Fiscal Policy Indicators in a Rule-Based Framework: An Indian Experience
26 Pages Posted: 15 Feb 2012
Date Written: March 30, 2006
Pattnaik, Raj and Chander examine the role of fiscal indicators in the Indian policy framework, which is essentially based on the Fiscal Responsibility and Budget Management Act of 2003 (FRBM). After surveying the literature on the measurement of structural and cyclical components of budget deficits, they examine public finance developments in India outlining the evolution of deficit measures and fiscal trends since the 1990s. The paper evaluates the impact of permanent and transitory factors in the recent fiscal consolidation phase, which has taken place in a context of fast economic growth. It assesses the effectiveness of the Central Government’s fiscal policy stance in terms of its impact on the structural component of the fiscal deficit and the compliance with the FRBM targets. The paper notes that the reduction of the deficit has largely been achieved via increases in revenue and concludes that tax policy changes have significantly contributed to this outcome.
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