Tuesday, February 26, 2008

How much progress on the fiscal deficit?

Ila Patnaik puts together the facts on deficit reduction, and off-balance sheet items.

You might like to see the recent IMF document, and an article of mine that (among other things) takes stock of India's progress towards fiscal stability. I emphasise three key tests of fiscal stability:

  1. The debt/GDP ratio should drop in all years, barring rare calamities;
  2. Government bonds should be voluntarily purchased by well motivated actors (i.e. not force-fed through financial repression or to PSU financial firms) and
  3. Measurement of deficits and debt should be correct.

At present, India fails on all three counts.

2 comments:

  1. If the PSU banks to be force fed government debt, their government bond holding would be close to the 25% SLR limit.

    But their government bond holding are consistently higher than the statutory SLR limit. Now that might be bad for other reasons, particularly efficiency of capital, but hardly a force-feeding.

    ReplyDelete
  2. I think of "well motivated" as an actor where behaviour is not distorted either by regulation or by ownership.

    ReplyDelete

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