India : Why Fiscal Adjustment Now

Pinto, Brian; Zahir, Farah

India : Why Fiscal Adjustment Now

Autores

Pinto, Brian

Zahir, Farah

Editor

World Bank: Washington, DC

Descripción

India's growth performance has been impressive over the last two decades. But its sustainability has been in question, first with the 1991 fiscal-balance of payments crisis (BoP), and then again after 1997/98, when fiscal deficits returned to the 10 percent of GDP range and government debt grew. This paper analyzes the deterioration in India's public finances and presents evidence suggesting that, in the absence of a fiscal adjustment, low inflation and high reserves may have been pursued at the expense of long-run growth and poverty reduction. Resolving this inflation-external vulnerability-growth policy trilemma requires fiscal adjustment. In making its case, the paper shows, first, that fiscal fundamentals have weakened after 1997/98 even when compared with the pre-1991 crisis period. This has continued in spite of the recent record lows in interest rates. Second, the fiscal stance is not conducive to long-run growth and poverty reduction because capital spending has been cut to accommodate higher interest payments and other current spending, with expenditures on the social sectors stagnating. Third, without a fiscal adjustment, the debt burden is likely to reach unmanageable levels by the end of the Tenth Plan period. In contrast, a phased adjustment beginning now and focusing on a relatively small set of reforms is likely to improve debt dynamics substantially over the same horizon, while also promoting faster growth and poverty reduction.

Palabras clave

ADMINISTRATIVE COSTS, AGRICULTURE, BAILOUT COSTS, BALANCE OF PAYMENTS, BALANCE SHEET, BALANCE SHEETS, BANK DEPOSITS, BANKS, BENCHMARK, BONDS, BORROWING, CAPITAL EXPENDITURES, CAPITAL FLOWS, CAPITAL GAIN, CENTRAL BANK, CIVIL SERVICE, COUNTRY COMPARISONS, DEBT, DEFAULT RISK, DEMAND DEPOSITS, DEPOSIT INSURANCE, DEVALUATION, DOMESTIC BORROWING, DOMESTIC INFLATION, ECONOMIC GROWTH, ELECTRICITY, EMPLOYMENT, EQUILIBRIUM, EVERGREENING, EXCHANGE RATE, EXPORTS, EXTERNAL SHOCKS, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIATION, FINANCIAL SECTOR, FISCAL ADJUSTMENT, FISCAL DEFICIT, FISCAL DEFICITS, FISCAL POLICY, FISCAL REFORM, FISCAL RESTRAINT, FISCAL YEAR, FOREIGN BANKS, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESERVES, GAMBLING, GDP, GOVERNMENT BONDS, GOVERNMENT BUDGET, GOVERNMENT DEBT, GOVERNMENT GUARANTEES, GOVERNMENT SECURITIES, GOVERNMENT SPENDING, GROSS DOMESTIC PRODUCT, GROWTH POLICY, GROWTH RATE, GROWTH RATES, IMPORTS, INFLATION, INFLATION RATES, INSURANCE, INTEREST RATES, LENDING RATES, LIQUIDITY, LIQUIDITY RATIO, LOW INTEREST RATES, M3, MACROECONOMIC POLICY, MACROECONOMIC STABILITY, MUTUAL FUND, NATIONALIZED BANKS, PENSION LIABILITIES, PENSIONS, PER CAPITA INCOME, POVERTY ALLEVIATION, PRESENT VALUE, PRIVATE BANKS, PRIVATE SECTOR, PRIVATIZATION, PROVISIONS, PUBLIC DEBT, PUBLIC DEBT MANAGEMENT, PUBLIC ENTERPRISES, PUBLIC FINANCE, PUBLIC OWNERSHIP, PUBLIC SAVINGS, PUBLIC SECTOR, PUBLIC SECTOR DEBT, PUBLIC SPENDING, REAL EXCHANGE RATE, REAL EXCHANGE RATES, REAL GDP, REAL INTEREST RATE, REAL INTEREST RATES, REAL SECTOR, REGIONAL RURAL BANKS, RESERVE BANK OF INDIA, RETURN ON INVESTMENT, REVENUE MOBILIZATION, REVENUE SOURCES, SAVINGS RATES, TAX, TAX REFORM, TAX REVENUE, TIME DEPOSITS, TOTAL REVENUE, TRANSPORT, USER CHARGES FISCAL BALANCE, BALANCE OF PAYMENTS, POVERTY MITIGATION, PRIVATE INVESTMENTS, FISCAL REFORMS, FISCAL SUSTAINABILITY