Journal of Indian School of Political Economy

Subrata Dutta ¹, Auke R. Leen ²

Affiliations
1 Sardar Patel Institute of Economic & Social Research, Thaltej Road, Ahmedabad-380054, IN
2 Tax Law and Economics Department, Leiden University, Steenschuur 25 (Room A.2.59, 2nd Floor, Wing A), 2300 RA Leiden, NL

Abstract

The emerging economies including India have shown symptoms of quicker recovery from the world-wide recession than the economies in the global north. The financial sector in euro-zone is still in deep trouble. High deficit countries, for example, Greece, Portugal, Ireland and Spain, among some others, are being blamed for the trouble. If solutions are not found to rescue the troubled zone, the developing countries may be further adversely affected. India’s goods export to Europe has already moderated. Although Europe is no longer India’s biggest export destination, the economy may be indirectly hit via other trading partners. Structural fiscal imbalances in the European countries are currently being tackled with common strict rules under the European "Fiscal Compact" which is the new version of the Stability and Growth Pact. Until the middle of the last decade, both the Indian central government and the state governments were found to be trapped into similar chronic problems. To address such structural issues, in India, the central and state governments have enacted the Fiscal Responsibility and Budget Management Acts in the national parliament and state assemblies, respectively. This paper looks into the fiscal consolidation processes in India and the EU and seeks to derive some understandings from the political economy perspectives of the processes.

Full Text