India’s primary deficit and interest payments burden: an assessment; special Issue on “Restructuring public finance for equitable growth. issues before the 12th finance commission”

Moorthy Vivek

Document Type

Article

Publication Title

Economic and Political Weekly

Abstract

This paper provides a critique of the 'consensus' view that a worsening revenue deficit and debt situation have prevented fiscal consolidation and argues that the fundamental problem has been a deteriorating fiscal deficit. It explains the distinction between worsening deficit and debt conditions using time period simulators with relevant variables from the Domar debt model. It shows that a rising debt ratio, which might appear to be due to unfavourable interest rate dynamics, can be related to a previous rise in the primary deficit. The Finance Commission mandated centre-state transfers are predicated upon economic performance indicators based on the revenue deficit; the validity of the consensus view is then critical in evaluating the efficacy of the transfer criteria.

Publication Date

1-4-2004

Publisher

Sameeksha Trust

Volume

Vol.39

Issue

Iss.26

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