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Macro Econ Stab

Macro Econ Stab

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Published by: Appan Kandala Vasudevachary on Mar 29, 2014
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05/22/2015

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MACRO ECONOMIC STABILISATION Macroeconomic stabilization involves returning to low and stable inflation and a sustainable fiscal and BOP position. Stabilization is necessary to overcome a crisis but it assumes a special importance if structural reforms are also introduced together with stabilization. Government in 1991, committing itself to a comprehensive program of structural reforms, it accorded an overriding priority to the stabilization of the economy. To this end, a policy to control inflation was adopted, and measures for fiscal correction and improving the BOP position were undertaken.
 
Control of inflation:
 
This could be brought down on the one hand by introducing fiscal and monetary discipline in the economy and on the other by improving output and supply position. It seems that Government achievements are modest on both fronts.
 
 
Fiscal adjustment: Fiscal adjustment is necessary for dealing with the twin problems of high domestic inflation and large deficits in the BOP. Fiscal deficit of the Govt was less than 6% of GDP at the beginning of the 1970s. However, it rose to 10.6% of GDP in 2002-03. To have fiscal adjustment, Central Govt announced its Fiscal adjustment program includes:
 
Curtail Non-plan expenditure
 
Optimization of Resource mobilization
 
Reduce Govt expenditure by reducing expenditure on defence, administration.
 
Reduction in subsidy payments
Reduction in interest payments
 
Control block money
 
 
Other sources of revenue mobilization are user charges on publicly provided utilities such as irrigation, electricity, water, Road transport etc.
 
BOP Adjustment: At present BOP position is not as precarious as it was in 1991. The accumulation of Foreign Exchange Reserves, suggests that the Indian economy has moved to a somewhat stale and sustainable BOP position in the last so many years. In India, the BOP problems arose largely from inadequate coverage of imports by export earnings. Which required a series of moves on the exchange rate and the exchange rate regime?
 

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