Saturday, February 20, 2010

Don't overdo fiscal consolidation

That's the title of my latest ET column. Yes, fiscal consolidation must happen but thee's no need to rush it until a full recovery has taken place.

In the long run, we need to take a fresh look at what level of consolidation of desirable.First, we need an accutate target for the fiscal deficit, one that factors in the off-budget deficit elements as well. Secondly, the target needs to be realistic- it must take into account the very real expenditure needs that will arise in the years to come, the prospect of the Indian economy moving onto a growth trajectory of 8-9% and the ups and downs of business cycles.

My sense is that the present limit of 3% for the fiscal deficit/GDP ratio, each for the centre and the states, is not realistic.

7 comments:

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krkmohan said...

Professor,

Well articulated indeed, but with States' finances in not too good shape and carrying significant deficits, should we not go for a small tightening? Also I would love to hear from you, your views on how to resurrect state finances and do you see de-centralization and more financial responsibility to states as we go forward.

- KRK Mohan

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