वित्त मंत्रालय के तहत एक स्वायत्त अनुसंधान संस्थान

 

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Dr. Lekha Chakraborty’s new book, Fiscal Consolidation, Budget Deficits and the Macro Economy, adds new insight to the venerable topic of how to conduct fiscal policy in the context of a developing economy. Her specific applications to India’s complex case is especially welcome, in the face of India’s rapidly changing landscape in its conduct of monetary and financial policy, its struggle to fund its government adequately, and its complex and ever-changing arrangements of fiscal federalism. Her book presents a comprehensive look at critical topics, including the relationship between fiscal policy and capital investments, the interplay of fiscal and monetary policies and interest rates and inflation, and the role of fiscal federalism in influencing optimal fiscal policy. She employs a combination of theoretical discussion and empirical testing. Her analysis is readable and interesting and she draws on state-of-the-art research in the d iverse fields of fiscal, monetary, and financial policies. 
 
Dr. Lekha Chakraborty’s new book, “Fiscal Consolidation, Budget Deficits and the Macro Economy,” adds new insight to the venerable topic of how to conduct fiscal policy in the context of a developing economy. Her specific applications to India’s complex case is especially welcome, in the face of India’s rapidly changing economic structure and in its conduct of fiscal, monetary, and financial policy. The challenges of India to fund its multi-tiered government adequately, undertake the critical investments it needs in public services, inject just the right amount of stimulus into a slowing economy, and devise a fair balance in its complex and ever-changing arrangements of fiscal federalism can only benefit from a book that lays out the issues so well. 
 
Her book presents a comprehensive look at critical topics, including a welcome focus on the impact of India’s fiscal deficit on macroeconomic developments, and especially, whether the rules-based approach to reducing the deficit has been beneficial. Her effort in capturing the latest thinking and research in international public finance, monetary, and financial economics in the Indian situation is noteworthy. She examines in detail the impact of fiscal deficits on capital investments, interest rates, inflation, and balance of payments developments, as well as the interplay of fiscal and monetary developments, and the role of fiscal federalism in influencing optimal fiscal policy. She employs a combination of theoretical discussion and empirical testing, all the while interweaving with research from the general domain but applied to the Indian case. Her analysis is readable and interesting.  
 
She draws some interesting conclusions. Most notably, she finds that fiscal deficits have been less harmful than some have argued, and there is little evidence for the crowding out of private capital investments or of pressure on interest rates. She expresses concern about the constraints of reducing fiscal deficits on longer-run economic growth of India, an important consideration in the context of India’s growth challenges recently. 
 
Her book raises relevant questions and provides a solid basis for further examination. I would recommend any student or scholar of India’s macroeconomic add it to his or her reading list.
 
Janet Stotsky, former advisor in the International Monetary Fund, is an expert on fiscal and macroeconomic policies, and fiscal federalism. She has taught at Rutgers University and American University, and worked at the U.S. Treasury. She consults with numerous organizations. 
 
The author is an external contributor and is not an NIPFP member. The views expressed in the post are those of the author only. No responsibility for them should be attributed to NIPFP.
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