Effectiveness of fiscal measures in correcting the fiscal imbalances in India

The week macro-management of the economy during the 1980s led to the large and persistent macroeconomic imbalances. The widening gap between the revenues and expenditures of the Government caused growing fiscal deficits which had to be met by borrowings at home. The unmanageable balance of payments crisis and the high rate of inflation were those twin crises which were growing in the 1980s and peaked in 1990-91. The Gulf crisis in the late 1990s severely heightened macroeconomic problems. There was also political instability in the country at this stage. All these developments together eroded international confidence in the Indian economy and as a result, this country’s credit rating in the international capital market declined steeply. This was the context in which the Government initiated a program of macroeconomic stabilization and structural adjustment with the support of the IMF and the World Bank. The regular budget for 1991-92 took a bold step in the direction of correcting the fiscal imbalance. The purpose of this research is to examine the reasons of the fiscal reforms started by the Government of India and to analyse the effectiveness of fiscal measures initiated by the government as a part of reform process in correcting the fiscal imbalances