On the Desired Direction of Fiscal Policy in India

This paper attempts to draw the trends and patterns of the major fiscal variables of India during a 30-year period from 1990-91 to 2019-20. The international comparisons have been made vis-à-vis these variables, with respect to all major country groups around the world (using the IMF Fiscal Monitor data), in order to identify the major fiscal divergences and for drawing some inferences regarding the desired direction of the fiscal policy in India. A brief review of the relevant literature has also been done. Based on the empirical analysis, this policy paper tries to argue that the aggregate revenue and the aggregate expenditure to GDP ratios of the combined government (central and state governments) in India have to be enhanced by at least 5-6 percentage points. Some expenditure rationalisation is required related to the interest payment component in India. This paper finally concludes that the public spending on health, education and the capital expenditure of the government should be enhanced substantially and more money should be devolved to the state government exchequers in India for a better future.