NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fiscal Rules in India: Are They Effective?

Willem H. Buiter, Urjit R. Patel

NBER Working Paper No. 15934
Issued in April 2010
NBER Program(s):   IFM   ME

This paper, a chapter in the forthcoming Oxford University Press Handbook of the Indian Economy, edited by Chetan Ghate, considers India’s experience with fiscal (responsibility) rules during the past decade. After reviewing the basic facts concerning public debt and deficits in India, the background and basic arithmetic of the Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) are presented and commented upon. With the very small number of data points at our disposal, no formal statistical estimation and hypothesis testing about the efficacy of the rules can even be attempted. Instead we critically explore the outcomes of the FRBMA over the 5-year period of its operation, 2004/05-2008/09, using an eclectic but comprehensive metric comprising quantitative targets, qualitative strictures, transparency, integrity, and overall financial performance over the business cycle. We also briefly review fiscal responsibility legislation (and outcomes) at the state level. The evidence suggests that in recent years the fiscal space “vacated” by the states has been usurped by the central government. Finally, the recommendations of the 13th Finance Commission regarding a roadmap for fiscal consolidation are examined. We also outline a basic incentive compatible framework for state and central governments to hold each other accountable over agreed pre-determined targets.

download in pdf format
   (287 K)

email paper

This paper is available as PDF (287 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15934

Published: "Fiscal Rules in India: Are th ey Effective?", with Urjit R. Patel, Chapter 21 in Chetan Ghate ed. The Oxford Handbook of the Indian Economy , pp 621-655, Oxford University Press, Oxford, New York, 2012.

Users who downloaded this paper also downloaded these:
Buiter and Patel w3287 Debt, Deficits and Inflation: An Application to the Public Finances of India
Alesina and Bayoumi w5614 The Costs and Benefits of Fiscal Rules: Evidence from U.S. States
Eichengreen and Gupta w16757 The Service Sector as India's Road to Economic Growth
Schmitt-Grohe and Uribe w12402 Optimal Simple and Implementable Monetary and Fiscal Rules: Expanded Version
Kochhar, Kumar, Rajan, and Subramanian w12023 India's Patterns of Development: What Happened, What Follows
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us