India: fiscal reforms and public expenditure management

At the dawn of the new Millennium, poverty reduction in the developing world has resurfaced as the most important subject in the literature on economic development. Most international institutions have joined the global campaign against poverty considering it as the greatest challenge before the world economy,

There are no two opinions on any government's objective of removal of poverty. Sustained growth of an economy is considered to be a necessary condition to reduce poverty. This, however, can hardly be achieved without maintaining macroeconomic stability. And a continuing high level of fiscal deficit could be the most serious threat to macroeconomic stability. Fiscal deficit, it is widely agreed. cannot be corrected without effective and efficient public expenditure management (PEM). PEM, therefore, has to be a central instrument of state policy and effective governance.

In this context studies initiated by the JBIC Institute on country specific assessments of PEM systems for a few developing countries is the most effective step towards understanding the issues relating to public expenditure management and poverty reduction in developing countries. This study on 'India: Fiscal Reforms and Public Expenditure Management' is part of the series of such studies the first two being on Pakistan and Philippines. A limited purpose of this study is to assess the public expenditure management system in India with an objective to identify the major tasks ahead.

A brief introduction to Indian economy with some comparative performance indicators of select countries forms the initial part of Chapter 1 on Macroeconomic Trends and Perspectives on Indian Economy. This chapter highlights recent trends in major macroeconomic indicators of the Indian economy, as a background to the perspectives indicated in some important studies/reports covering the Indian economy. Before summarizing the perspectives; an overview of recent. economic reforms has also been given. A limited purpose of the chapter being to provide a background of trends and perspectives only any analysis of factors leading to these trends had to be restrained.