Fiscal Consolidation in India: Performance Insights and Trend Analysis Following Economic Reforms

The present paper attempts to make a brief descriptive and analytical study on the trends of various fiscal indicators of the general government in the context of fiscal consolidation in India. The study has divided the post-reform Indian economy into five distinct phases based on significant events having economic implications. The analysis shows that phases I, III and the recent phase V are the most stable and fiscally prudent years. These years mark the starting of the LPG reforms of 1991, the FRBM Act and the Post-Pandemic recovery. Phases II and IV have been the most challenging years marking two big crises in the form of the Global Financial Crisis of 2008 and the worldwide pandemic of Covid-19. These two periods witnessed unstable public finances with growing deficit and debt levels. The results are based on a CAGR analysis for all the phases separately as well as an overall study from 1991 to 2024. Overall, while India has made significant strides in enhancing revenue generation since the 1991 reforms, the simultaneous rise in fiscal deficits and outstanding liabilities (as indicated by comparatively more positive growth in these as against revenue growth in the analysis) indicates challenges in achieving true fiscal consolidation. The government should prioritize a more effective balance between revenue and expenditure to ensure long-term fiscal sustainability. This involves managing liabilities prudently by minimizing excessive reliance on debt financing and aligning it with the growth rate of GDP. Continued efforts are needed to improve efficiency in public spending and enhance revenue collection mechanisms to achieve a healthier fiscal position moving forward. Keywords: Fiscal Consolidation, Compound Annual Growth Rate, FRBM Act