Managing Fiscal Deficit in India in 1990s: A Case Study

Increasing fiscal deficits is a chronic problem faced by developing countries. Countries like India and other emerging economies are facing the problem of large fiscal deficit and the question is how to manage it so that it would lead to sustainable economic growth. The arguments on the efficacy of the large fiscal deficits are inconclusive with agreement on some basic issues. One of the alarming features of the fiscal deficit in India has been increasing non-plan expenditure in 1980s and 1990s. Huge fiscal deficits have their impact on money supply, inflation and investment. By 1990s there has been a steady growth in debt to GDP ratio. In order to overcome the problem of high fiscal deficit and increasing debt GDP ratio, this paper provides some concrete suggestions and calls for coordination between monetary and fiscal policy.