Sustainable Fiscal Policy in India: Post-Pandemic Challenges

Abstract

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.