Sustainable Fiscal Policy in India: Post-Pandemic Challenges




The burgeoning fiscal deficit and debt sustainability in India have been a matter of concern for a long time. The levels of deficit and debt in India have been much higher than the levels seen in emerging economies. The Coronavirus Pandemic has brought the issue to the fore once again. The Russian invasion of Ukraine and the consequent sanctions have only worsened the situation. The attempts to control them by implementing rule-based fiscal policy, like in most other countries, have not been successful. The numerical targets on deficit and debt recommended by successive Finance Commissions and taken in FRBM Acts have been observed in their breach rather than compliance. The targets have been repeatedly revised and suspended, escape clauses have been invoked, and compliance, when shown, is done through creative accounting. To impart greater effectiveness to fiscal management, the paper argues for reforms in budget management and the creation of an independent institution to monitor the implementation of rule-based fiscal policy – the Fiscal Council as recommended by the Finance Commissions.


Fiscal Policy, Fiscal Rules, Fiscal Council, Debt Sustainability, FRBMA


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Author Bio

M Govinda Rao, Takshashila Institution

Dr. M. Govinda Rao is the Councillor of Takshashila Institution. He is an economist and was a member of the 14th Finance Commission. Dr. Rao has previously served as the Director of National Institute of Public Finance and Policy and as the Director of Institute for Social and Economic Change.

He has also worked in a number of advisory roles. He was a Member of the Economic Advisory Council to the Prime Minister. He was a member of the Financial Sector Legislative Reforms Commission (FSLRC) and the Expert Committee on Multilevel Planning, Planning Commission. He has been a consultant to the World Bank, International Monetary Fund, Asian Development Bank, and the UNDP.


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