The Role of Fiscal and Monetary Policies in Sustaining Growth with Stability in India

The performance of the Indian economy in recent years has attracted increasing international interest. This conference is therefore a timely one to take stock of what has happened and to also deepen our understanding of the policies and processes that have led to the current trends. This paper focuses on the role of fiscal and monetary policies in the evolution of the Indian economy over the years, with particular attention being given to the reforms undertaken in these policies since the early 1990s. Macroeconomic Overview An interesting feature of the record of economic growth in India is that it has experienced a sustained slow acceleration in growth since independence. Growth has been accelerating gradually since the 1950s, except for an interregnum between 1965 and 19801 (Table 1). Thus, the current observed acceleration in growth has to be seen in the context of this long record of consistent growth, which has been accompanied by a relatively continuous increase in savings and investment rates over the years. What is remarkable in recent years is the very substantial steep increase that has taken place in this decade in the rates of savings and investment. Comprehensive economic reforms have been undertaken on a continuous basis since the crisis year of 1991-92, which have presumably contributed to the acceleration in growth that is now being experienced. There was, however, som