1. Institutional Reforms
for Fiscal
Consolidation
GROUP 8
SECTION: D
Name Roll Number
Rakesh Kumar Choudhary 2014220
Rishabh Aggarwal 2014232
Rushi D Deshmukh 2014242
Shivam Tripathi 2014267
Shivika Sagar 2014269
Maxime Ricard 2014349

2. Introduction
 Fiscal Consolidation: Fiscal consolidation is a reduction in the
underlying fiscal deficit. It is not aimed at eliminating fiscal debt.
 Neoclassical view on Fiscal deficit:
A fiscal deficit will have a detrimental effect on growth if the reduction in
government saving or an increase in government dissaving. Fiscal deficits
raise lifetime consumption by shifting taxes to future generations.
 Keynesian View on Fiscal deficit:
If financed by borrowing, an increase in autonomous government
expenditure—whether investment or consumption— would cause output
to expand through a multiplier process particularly when there are
unemployed resources. Increased aggregate demand enhances private
investment and leads to higher investment at any given rate of interest

3. Effect of Fiscal deficit on Money
growth and Inflation

4. Method to Reduce Fiscal
deficit

5. Method to Reduce Fiscal
deficit continues…
 Implement GST: The Goods and Services Tax (GST) is expected
to simplify and streamline the indirect tax regime. It contains all
the indirect taxes levied on goods - including central and a
state-level taxes. GST also lowers the cost of doing business.
 Aggressive disinvestment: The government can plan to sell
shares in state-owned companies to raise a record amount
from disinvestment this year. Stock market boom and a
brightening of economic outlook will lead to a blockbuster
asset-sale program.
 Lower subsidies: The subsidy system in India is wrought with
inefficiencies. Government need to improve the supply-side
economics of food, so that reducing subsidies becomes easier.
 Tax Slabs and Tax Administration: It is estimated that only 3-4%
of Indian people are paying taxes. The government needs to
look at measures in which the self-employed and corporates
do not end up evading tax.

6. Managerial Implication
 Indian government suspended its fiscal consolidation
program during 2008-09 global crisis. But with global
recovery, government started gradual withdrawal of
fiscal expansionary policy. It will result in lower rate of
interest. As a manager one can plan expansion of
capacity, hiring of employees etc.
 Above phenomenon will also affect the inflation. With
lower rate of interest, inflation will move upward. As we
know creeping and walking inflation is conductive for
the growth of economy. This will only help profitability of
firms.

7. References
 http://www.iegindia.org/workpap/wp314.pdf
 http://www.rbi.org.in/home.aspx
 http://www.business-standard.com/article/news-
cm/fiscal-consolidation-is-critical-for-lowering-india-s-
debt-to-gdp-ratio-crisil-research-114062400466_1.html
 http://lexicon.ft.com/Term?term=fiscal-consolidation
 http://www.moneylife.in/article/how-will-the-modi-govt-
reduce-indias-fiscal-deficit/37772.html
 http://articles.economictimes.indiatimes.com/2014-07-
03/news/51057630_1_services-tax-gst-fiscal-deficit/2