Takshashila Discussion Document - Fiscal Consolidation is the Key to Economic Growth

Economic PolicyStrategic Studies
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Executive Summary

The budget is the first and the most important policy announcement that the new NDA government will be making. It has come to office riding the wave of aspiration and impatience of a youthful population. The personal credibility of the Prime Minister is high. This is an ideal setting for the government to place long-term interests of the nation ahead of short-term costs, even if they mean hurting special interest groups. The government has nothing to fear. Status-quoist incremental tinkering at the margin will leave both its supporters and the nation at large disillusioned and discouraged.In a recent newspaper essay, Shinzo Abe, Japan’s prime minister noted that economic growth was important for Japan to achieve fiscal consolidation. In India’s case, with government dominance of the banking sector, government claim on national savings through the banking system and the consequent financial repression, fiscal consolidation is the key to achieving sustainable economic growth. This Discussion Document provides directions for the 2014 and future budgets focussing on the budget-making processes, subsidies, fiscal dominance of monetary policy, inflation expectations, bank ownership and fiscal consolidation.

Authors

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Narayan Ramachandran
Narayan Ramachandran

Narayan Ramchandran is one of Takshashila’s co-founders. He worked on Wall Street (mostly at Morgan Stanley) for over 20 years, most recently as head of global emerging market investing and then country head of Morgan Stanley in India.

Mukul G Asher
Mukul G Asher

Mukul G. Asher is a Professor in the Lee Kuan Yew School of Public Policy at the National University of Singapore. He received his PhD in Economics from Washington State University in 1972. In addition to India, Singapore and USA, he has also taught or researched in U.K., Sweden, Japan, Australia and Malaysia. He was previously a Fellow at Takshashila. His research has focused on fiscal reforms, India’s external economic policies, and pension reform in Asia.

V. Anantha Nageswaran
V. Anantha Nageswaran

V. Anantha Nageswaran is the current Chief Economic Adviser (CEA) to the Government of India. He is an economist and has worked for Credit Suisse in Switzerland and Singapore, and for the Union Bank of Switzerland. He was previously a councillor and a co-founder of the Takshashila Institution.

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