India's performance in accelerating human development (HD) has been less impressive than its growth performance, a structural feature considering how long it has persisted. The divergent macroeconomic and HD performance underlies an ascendancy of macroeconomic policy over social development policies. Based on the experience of the Indian economy in the last three decades, this paper explores the limitations of the present fiscal policy framework, its objectives, and targets vis-à-vis the imperatives of HD. An alternative macro-fiscal framework integrating HD is proposed.

 

The trends across the last thirty years indicate a stagnant HD spending to GDP in India.  The normative distances, international comparisons, and lack of progress vis-a-vis past positions, all seem to indicate underperformance in social spending in India and the need for greater investments.   Fiscal policy determines the scope of social policy and HD outcomes through its control over fiscal space.  The misalignment of the fiscal policy framework and the necessary social spending to support social policy was experienced in a variety of ways, as this paper demonstrates.  The key propositions for an alternate fiscal framework integrate the specificities and potential of HD and points in the direction of (i) considering HD expenditure as investments and not as current consumption in fiscal policy, (ii) considering the simultaneity of demand and supply effects of public investments for the macroeconomy (iii) taking cognizance of the self-sustaining nature of HD investments, and (iv) moving fiscal sustainability to a long-term horizon. 

 

Keywords: Social Spending, fiscal Policy, macro-fiscal framework, human development, fiscal rules, normative targets.