A Systematic Exploration of India's Fiscal Landscape Pre and Post Liberalisation

Beyond Reform: A Systematic Exploration of
India's Fiscal Landscape Pre and Post

Liberalization
GROUP 5
ADITI SARKAR
ROOPKATHA ROY
ANIRBAN LALA
NIDHI SONI
RAKTIM SARKAR
SUKANYA MAJUMDER
CONTENTS
SERIAL NO. TOPIC DONE BY PAGE NO.

1 SYNOPSIS 1
2 LITERATURE 2-4
REVIEW
3 ANALYSING THE ANIRBAN LALA 5-19

STATE OF THE
ECONOMY USING
THE CLOSED
ECONOMY MODEL
4 ASSESSMENT OF NIDHI SONI, 20-32

REVENUE ANIRBAN LALA
RECEIPTS FROM
1971-72 TO 2021-22
5 ASSESSMENT OF ADITI SARKAR, 33-41

PUBLIC RAKTIM SARKAR
EXPENDITURE
INCURRED BY
THE CENTRAL
AND STATE
GOVERNMENTS
FROM 1971-72 TO
2021-22
6 FROM LEDGER TO SUKANYA 42-50

LIBERATION : MAJUMDER,
FISCAL RATIOS IN ROOPKATHA ROY
INDIA'S
HISTORICAL
MIRROR
7 APPENDIX
SYNOPSIS
Our paper aimed to systematically explore India’s fiscal landscape from 1971-72 to 2021-22.
The study has been broadly divided into two periods i.e., pre-, and post-economic reforms.
A brief outline of the economy in the pre-liberalisation period is presented at the beginning of
the paper. To support the arguments and findings, an in-depth Keynesian analysis of the GDP
during the pre-liberalisation period has been developed, taking the help of the model given by
Ghosh and Ghosh. It aimed at capturing the convolutions of the economic dynamics during
the 1970s. The analysis of the Bangladesh Liberation Movement in 1971 through our model
revealed a dip in foreign aid thereby affecting the output of the country. Furthermore, a
scrutiny of the growth rate through the years has been provided. A review of various
literature is given to get a deep insight into the neo-liberal reforms and their effects.
Thereafter, a detailed assessment of the public revenue has been accorded with a special
focus on tax revenue.
The examination of tax buoyancy holds paramount significance in the formulation of
effective tax policies.Concerning this, an examination of the tax system has been given using
regression analysis. The null hypothesis considered is whether the buoyancy of tax revenue in
pre- and post-liberalization has remained the same. Our study has rejected the null
hypothesis. Additionally, it has been tested whether the public expenditure incurred by both
the state and central government has contributed to the growth of the GDP. The concluding
results have rejected the null hypothesis. Finally, a detailed analysis of the various ratios has
been studied to ascertain the trend and movement of the fiscal deficit, revenue deficit, and
public debt for the past 50 years.
1
LITERATURE REVIEW
● Ghosh and Ghosh (2016) in their book seek to bridge the gap that exists in India
between macroeconomic theories that are taught and their application to the Indian
economy. Part II of the book which is co-authored by Sudipta Jha and Hiranya Lahiri,
using a model, discusses the growth experience of India in 6 chapters. Those models
explained various factors and parameters responsible for variable growth in the country.
● Chandrasekhar and Ghosh (2000) in their book discuss the implications of the
neoliberal economic reform programme in India. This book sheds light on how the role
and policies of the state changed at the stroke of liberalisation in India.
● Atul Kohli (2006) in his paper, discusses the political economy of India from the 1980s
to 2005. His work evaluated how government policies affected the political scenario of
private investors in India from the 1980s and discusses the cumulative events which
eventually led to the liberalisation of the economy.
● In the study conducted by Charles Y. Mansfield (1972), a comprehensive regression

analysis was undertaken to assess the elasticity and buoyancy of the tax system, with a
particular focus on Paraguay. Mansfield's research centred on comparing the disparities
between tax elasticity and tax buoyancy. The quantitative findings of this investigation
depicted a scenario characterized by the expansion of tax bases and notable discretionary
changes. However, these positive aspects were somewhat counteracted by issues such as
tax evasion, exemptions, the specific nature of certain duties, and possibly inadequate
administrative efforts in tax collection at existing rates. In essence, the study revealed that
while there were indications of growing tax bases, the overall income elasticity of major
taxes remained relatively modest. This phenomenon could not be solely attributed to
stagnant or slowly expanding bases. Consequently, the pivotal factor identified for
enhancing the income elasticity of the tax system was deemed to be an augmentation of
the tax-to-base elasticities. Overall, Mansfield's research suggested that improvements in
the income elasticity of the tax system would hinge on a strategic increase in the
elasticities relative to the tax bases.
● M.M Jain (1982) using regression analysis found that the tax structure in place between
1955-56 to 1965-66 was highly buoyant concerning the increase in national Income. He
found reasons to explain this buoyancy during the very same decade.
● M Upender (2008) attempted to provide empirical content to the differential coefficient

of tax [revenue] buoyancy during the post-tax reform period in India by fitting a
double-log regression model with an interaction variable to the stationary time series data
2
based on Augmented - Dicky Fuller [ ADF ] and Phillips-Parron [PP] Tests. From his
analysis, he found out that the average propensity to tax is declining with the increase in
Gross Domestic Product during the post-tax reform period.
● Acharya, S. (2005) in his paper Thirty Years of Tax Reform in India has depicted the tax
reform path that India has followed in the past 30 years. The paper beautifully depicts all
the significant changes in the Indian tax structure.
● Pratap Singh (2019) in his working Paper 448 , Tax Revenue in India: Trends and Issues
showed how the tax reforms undertaken by the Indian government has impacted the
public revenue. It used different measures to depict how the economy has been effected
in different aspects.
● Shantayanan Devarajan, Vinaya Swaroop, Heng-fu Zou (1996) used an analytical

model to derive the conditions under which a change in the composition of public
expenditure could lead to a higher steady-state growth rate for the economy. It depended
on the physical productivity of the components as well as on the shares of public
expenditure allocated to them. The study suggests that expenditures which are considered
productive may become unproductive on incurring an excess amount of it. In particular,
capital expenditures, considered the roadmap to development, have been excessive in
developing countries, rendering them unproductive at the margin.
● Bhola Khan (2023) used an Autoregressive Distributed Lag (ARDL) model, Bound Test
and Error Correction Model to establish a relationship between the Development and
Non-Development Expenditure of India and their effect on economic growth during the
period 1991-2021 (post-liberalization). The study finds that Non-Development
Expenditure has a negative impact on economic growth in the short-run and hence
recommends the government to reduce it and increase the Development Expenditure in
the short run.
● Gupta and Singh (2016) traced the major changes in India’s fiscal policy since 1980-81
through the country’s balance of payments crisis of 1991, the post economic
liberalization and high growth period, the introduction of FRBM Act in 2003, adjustment
to the global financial crisis of 2008 and the recent post-crisis changes to return to a path
of fiscal consolidation The study found that from 1980-81 to 2002-03 the periods of crisis
led to the burgeoning of the deficit to unsustainable levels and prompted the government
to introduce and adopt economic reforms to ensure that the deficit stood at more
reasonable levels. However, since 2003-04 the government has been more proactive and
has undertaken fiscal policy reforms to ensure a steady reduction in fiscal deficit as a
percentage of GDP leading to a more resilient economy.
3
● Raju and Mukherjee (2010) examined the long-run relationship between the fiscal
deficit, crowding out of private capital formation, and net exports for the Indian economy
during the period from 1980-81 to 2008-09. The objective of the paper was to review the
fiscal performance of India’s central and state governments before and after the reform
laws. The study concluded that from a macroeconomic perspective, low levels of fiscal
deficit and public debt are generally considered necessary to ensure the sustainability of
high economic growth and macroeconomic stability.
● Saxena and Shanker discussed the perspective of India’s external debt management in
the light of the external debt policy measures adopted by the Government of India since
1991. It concludes that although India holds 4th position among developing countries, its
gross external debt was at its highest mid 2013.Since rising external debt is a burden on
the country’s GDP, policy makers should consider ways of managing the debt to avoid
turmoil.
● Rangarajan and Srivastava examined the long term profile of fiscal deficit and debt
relative to GDP in India, with a view to analyze debt-deficit sustainability issues along
with the considerations relevant for determining suitable medium and short-term fiscal
policy stance. The impact of debt and fiscal deficit on growth and interest rates that arise
from their effect on saving and investment are critical in the examination of sustainability
of debt and deficit. It concludes that even if fiscal deficits may appear to be sustainable
according to some studies, the critical issue relates to determining appropriate levels of
debt and deficit relative to GDP on which these should be stabilized. This can be done by
developing rules with given growth and interest rates and initial debt levels. However,
since fiscal deficits and debt affect growth and interest rates, answers need to be derived
using information on their impact on savings and investment, which ultimately determine
the growth rate.
4
ANALYSING THE STATE OF THE ECONOMY USING THE
CLOSED ECONOMY MODEL
“No power on earth can stop an idea whose time has come”
- Manmohan Singh, 1991 Budget speech
Overview of the Economy in the Pre-Liberalisation period:

Both proponents and critics of neoliberal reform anchor their perspectives in an analysis of
the circumstances leading to the developmental stagnation of the late 1960s and 1970s. This
era witnessed a substantial deceleration in growth compared to the initial 15 years
post-independence. Numerous factors were ascribed to this slowdown, which the theoretical
model under discussion sought to address.
In the early years, India faced limited export opportunities. Mahalonobis (1953) formulated a
mathematical model (resembling one developed in the Soviet Union by GA Feldman in 1928)
to advocate the "Inward Looking Strategy of Growth" during the second five-year plan. This
strategy was premised on the belief that India's export prospects were restricted, necessitating
a focus on self-reliance.
In economic theory, the 'Turnpike Theorem' posits that the highest growth rate of a bundle of
goods in a closed economy is achieved by initially concentrating resources on the bottleneck
sector. In the Indian context, this sector was identified as the machine-making sector. The
Nehru-Mahalanobis strategy, as noted by economists like Maurice Dobb (Britain) and Leif
Johansen (Norway), represents a unique instance of a 'Turnpike strategy.' The pursuit of such
a strategy, assuming a closed economy, inherently aligns with the pursuit of economic
self-reliance, minimizing dependence on global trade prospects.
Given that India imported over 80% of its manufactured items, the strategy prioritized a
robust industrialization program to reduce reliance on foreign goods. Due to this idea of
“atmanirbharta”/Self-reliance developed by our planners, most of the giant industries were
reserved for the government. However, due to a technology gap, India had to import all its
machinery, necessitating the hiring of foreign professionals to train Indian workers in their
operations. This made India’s development strategy much more import-intensive.
As we delve deeper into understanding the factors influencing growth volatility during this
period, our theoretical model aims to capture the intricacies of the 1970s economic dynamics.
This model will shed light on the nuanced interplay of various elements that contributed to
the growth impasse, providing a comprehensive framework for evaluating the effectiveness
and limitations of the Nehru-Mahalanobis strategy. By examining the volatility in growth, we
seek to gain insights into the intricate economic forces at play and pave the way for a
nuanced discussion on the subsequent shifts in India's economic policies.
5
We shall develop a Keynesian analysis of our GDP during the pre-liberalisation period
(Ghosh and Ghosh) where Y is determined by its demand. The goods market equilibrium
condition is given by:
𝑌 = 𝐶((1 − 𝑡)𝑌) + 𝐼 + 𝐺 + 𝑋((𝑃 * 𝑒)/P; Y*) - (i)
‘C’ denotes consumption expenditure, is a function of disposable income, and ‘t’ denotes the
ad valorem tax rate.
denotes the gross investment, was a policy variable, and hence was decided by the planners.
denotes government consumption expenditure.
X denotes exports which were relatively small during the pre-liberalisation period, is a
function of foreign goods’ price (P*) valued in our currency (Hence ).
denotes the officially pegged exchange rate.
P* shows the average price of foreign goods and services in foreign currency
Now, pre-liberalisation period imports were monitored through import licencing, since India
had to import a lot to sustain its growth it was dependent on grants, loans and unilateral
transfers from ROW, minus the debt repayments on its previously taken loans. Thus,
(ii)
Eqn (ii) can be considered as the supply side of exports.
X denotes exports.
A denotes unilateral transfers and loans from the rest of the world in our currency.
D denotes the debt repayments on previously taken loans.
Now we can consider both A and D as given, A as mentioned earlier denotes unilateral
transfers and loans from the rest of the world. Grants depend on the relationship of one
country with another and other diplomatic negotiations or treaties, loans from the foreign
market were mostly secured by the governments since there were stringent restrictions on
foreign borrowing. These amount of loans also depends on the country’s creditworthiness in
the international market and hence ‘A’ can be considered to us as given. Repayment of these
loans depends on the interest at which they were taken and, the amount of outstanding
external loans at the beginning of the period under consideration.
Mostly imports were necessities of the economy rather than luxuries, it consists of imports
for consumption and gross capital formation in the economy. Hence the demand side of
imports can be written as:
= (iii)
denotes the price of imported intermediate inputs in foreign currency.

denotes the price of imported capital goods in foreign currency.
denotes import intensity of production. It denotes how much intermediate input is
required to produce one unit of domestic output.
denotes the import intensity of investment. It measures the amount of imported capital
goods required per unit of domestic investment, 𝐼.
6
𝑀 denotes the autonomous component of the import demand. ( Mainly represents food
imports made by GoI to meet domestic food deficits due to unfavourable natural factors.)
Let and
Therefore equating import demand and import supply function from eqn (ii) and (iii) we get:
(iv)
From equation (iv) we can get 𝐼 , it is given by:
(v)
Using equation (v) in (i), we get:
(vi)
Problems in the Economy in the 1970’s:

Despite the talk of land reform, of providing land to the tiller and curbing the concentration
of economic power, little was done to attack or redress asset and income inequality in India.
One of the consequences of the persistence of asset and income inequality was that there
were definite limits to the expansion of markets for mass consumption goods in the country.
As imports were monitored native Indians were deprived of accessing relatively cheap
imported goods from the world market. Employment and income growth in the private sector
was limited and the large mass of peasantry, faced with insecure conditions of tenure and
often obtaining only small shares of outputs they produced, had neither the incentive nor the
means to invest. The dream-like story portrayed under the implementation of the “Green
Revolution “ was not dreamy at all, it was limited to rich capitalist land-owners and wealthy
peasants. Therefore the growth prospect in the consumption expenditure component (denoted
by ‘C’ in our model was limited.
1971-72 and 1972-73 (Bangladesh liberalisation movement- a burden on India):

As we have mentioned above, foreign assistance from abroad depends on multiple factors,
one of the main factors is diplomatic relations. The hostile situation with Pakistan meant a dip
in foreign aid.
7
The inflow of foreign assistance (in crores)
1970-71 1971-72 1972-73 1973-74
Gross Aid 791 778 666 999

Disbursement
Total debt service 450 450 507 595

payments
Net Aid Flow 341 328 159 404

(Economic Survey, various years)
A ceteris paribus change in net aid flow results in:
𝑑𝑌/𝑑(𝐴 − 𝐷) Is>1. Therefore a ceteris paribus decline in Net Aid flow leads to a fall in
output in our model.
We can see that a fall in (D-A) by a huge margin has led to a shrinkage in the economy
during the war years. Also, valuable resources were diverted between 1971-73 for the
settlements of refugees from Bangladesh. Also, these two years were drought periods as a
result 𝑀 component of the model was also affected.
Clearly, 𝑀 < 1, a ceteris paribus increase in autonomous imports results in a fall of Y.
8
Comment on the type of foreign aid:
Even though our economy grew over the period at a “secular rate”, our percentage of gross
foreign aid to GDP loitered around one to two per cent. Most of these foreign aids were in the
form of loans, which later became a burden for the economy, it will be discussed later.
(data retrieved from the economic survey and indiastat )

Our percentage of loans to Total foreign aid remained high, throughout this period.
(computed using data collected from economic survey reports)
9
The rise of OPEC countries and India’s growth experience:
Due to the oil price shock in 1973, which continued till January 1974, the price of oil in the
international market increased from $2.90 before the embargo to $11.65 a barrel in January
1974.
IMPORTS OF CRUDE OIL (quantity in tones, value in crores)
Year Quantity Value
1971 12688 139.88
1972 12310 144.25
1973 13443 244.56
1974 13973 899.36
1975 13600 992.02

(source: Indian petroleum and natural gas statistic, various issues)
Hence the P* in our model has changed sharply.
India’s Growth experience in the latter half of the 1970s:

India experienced some growth between 1974-75 to 1978-79, due to its increased growth in
imports, some bumper harvest years and transfers from the gulf, as the OPEC countries’
economies rose (Ghosh and Ghosh). However, due to the 2nd oil price shock in 1978, India’s
import bill increased massively, also due to a fall in agriculture production as well as
industrial production in 1979-80, India’s GDP growth was crippled by 5.238(when computed
in 2011-12 prices).
10
(RBI, Handbook of Statistics for the Indian Economy, computed at 2011-12 prices)
The growth in the 80s and the road to private capital and neo-liberal reforms:
The Indian economy found its new wings in the new decade of the 80s. After the volatile
decade in terms of growth in the 70s, the Indian economy witnessed a recovery and
acceleration of both GDP growth and manufacturing activity. The manufacturing sector grew
at an impressive average rate of 6.5%. (Atul Kohli’2006).
YEAR INDUSTRIAL GROWTH Gross Investment/GDP

1950-64 7.4 13
1965-79 3.8 18
1980-1990 6.5 22.8
1991-2004 5.8 22.3
The gross domestic product in the 80s also experienced an average growth of 5.6%.
(Calculated using GDP at constant prices 2011-12).
11
(Computed using data from RBI, various issues)
Also, Gross investment/GDP increased from 18% to 22.8%. The growth in investments was
fuelled in the 1980s by both growing public investments and private corporate investments
and in the 1990s, public investments declined due to a variety of growing private
investments.
12
(Computed using data extracted from RBI, at current prices)
Virmani (2004A and 2004B) and Rodrik and Subramanian (2004) have established via a
variety of more formal tests that 1980 (or thereabouts) indeed represents a break from
India's “Hindu growth rate”.
Although private investment to GDP grew from a mere 2%(approx) in the 1970s to
4.1%(approx) in the 1980s, it was in no way sufficient to stimulate growth in an economy as
large as India. This implied that the stimulus to growth had to come from the state. Three new
features characterized the 1980s:
● Increase in the fiscal stimulus to the economy provided by the government. (Hence
the 𝐺 component in our model was affected)
● There was a substantial liberalisation of imports, especially of capital goods and
components of manufacturing, which resulted in the growth of the manufacturing
sector. There was a decline in the share of canalized imports. Canalization refers to
the monopoly rights of the government for the import of certain items. Between
1980–81 and 1986–87, the share of these imports in total imports declined from 67 to
27 percent. Over the same period, canalized non-POL (petroleum, oil and lubricants)
imports declined from 44 to 11% of the total non-POL imports. (IMF 2004) This
change significantly expanded the room for imports of machinery and raw materials
by entrepreneurs.
13
● Also, there was a shift to relying on commercial borrowing by the state to finance the
increase in consequent fiscal and current account deficit. (Ghosh and Ghosh, 2016)
In terms of fiscal stimulus, there was a significant increase in the total fiscal deficit as a share
of GDP. The gross fiscal deficit (state and central combined) as a percentage of GDP
increased from 6.14 at the beginning of the 80s decade to 9.3 by the end of the decade at
constant prices (2011-12). This was not due to any increase in the share of public investment
(see Atul Kohli 2006), but largely the decline in the share of public savings, reflected in the
burgeoning revenue deficit. (see fig below). This was because the government failed to
generate more taxes.
14
(Data extracted from RBI archives, various issues at const prices, 2011-12)
The decade of the 80s was marked by a series of tax cuts (both concerning the wealth tax and
income tax), still, the government failed to increase the base of taxpayers as a result the tax
collection as a percentage of GDP stayed at around 1% of the GDP at constant prices. There
was a growing expenditure on the interest payments because of the past deficits. The situation
was so bad, that by the end of the decade debt service payment to loan received ratio
increased to 76% from 28 % at the beginning of the decade.
(data collected from Indiastat)

The liberalisation of imports of capital goods and components required for several
commodities catering to luxury consumption, especially electronics and automobiles.
The value of Petroleum Oil imports surged from $2049 mn. (Rs. 1681 cr.) in 1978-79 to $
6659 mn(Rs. 5266 cr.) in 1980-81 as reported by the Director General of Commercial
15
Intelligence and Statistics. However due to the development of the Bombay oil field the POL
imports were reduced. As far as the DGIS data is concerned, the POL imports reduced from
40 per cent of the total imports in 1980-81 to only 20% in 1983-84( Sushil Khanna 1992).
However, the decline in the POL imports was offset by the surge in imports of intermediate
components and capital goods for a host of new industries now opened to the private sector
under the liberal industrial policy. If not because of the sudden increase in imports due to the
import liberalisation in the 80s, India’s trade deficit would have declined significantly in
absolute terms.
(RBI, various issues)

Meanwhile, remittance inflows during this period had flattened out and ‘soft loans’ were
becoming more and more difficult to come by. In this context, the maintenance of a high,
absolute level of trade deficit, and the related need to finance a large current account deficit
turned out to be an extravagance that could not be sustained.
The planners resorted to commercial borrowing from abroad, including the NRIs. The inflow
of NRI deposits increased from 243 crores in 1982 to a whopping 4100 crores in 1989. This
contributed, with a lag, to large current account deficits because of the need for debt
servicing, and eventually necessitated further borrowing.
16
(collected from World Bank debt tables)
India’s debt nearly quadrupled between 1980 and 1990, it increased from $20 billion to
nearly $72 billion by the end of 1991. It is the combination of these three features which
explains the state’s ability to pull the economy out of the impasse it faced during the late
1960s and 1970s.
The Gulf crisis of 1990-91 precipitated a substantial impact on India's economy, particularly
evident in the third oil price shock. During this period, the value of India's petroleum imports
surged by $2 billion, reaching $5.7 billion, as outlined in an IMF report. This escalation was a
consequence of both the heightened global oil prices associated with the Middle East crisis
and a concurrent surge in oil import volumes. The situation was exacerbated by disruptions in
domestic crude oil production due to supply difficulties.
In response to the economic challenges posed by the burgeoning import bill, India sought
significant foreign assistance. However, the availability of soft loans dwindled, and the nation
found itself grappling with an immense external debt, rendering its economy highly
susceptible to currency speculation and a discernible "confidence crisis" among international
investors. Notably, this vulnerability represented a novel phenomenon for the Indian
economy.
In navigating these economic uncertainties, proponents of neo-liberal reform seized the

opportunity to advocate for an "IMF-style stabilization and adjustment strategy." This
approach, akin to recommendations from the International Monetary Fund (IMF), aimed to
address the economic imbalance and stabilize the precarious financial situation. The
unfolding events at this juncture marked a pivotal moment in India's economic history, where
external shocks prompted a reevaluation of economic policies and paved the way for the
implementation of strategies aligned with the principles of neo-liberalism and international
financial institutions.
17
Contours Of Neoliberal Reforms:
The aforementioned model falls short of capturing the post-reform economic growth
trajectory. This inadequacy is primarily attributed to the model's initial assumptions
breakdown and the shift in the state's role from a "planner" to an "intermediary." The policies
implemented post-1991 can be categorized into two main components: "stabilization" and
"structural adjustments."
The initial stabilization component aimed to contract the economy, diminish the growth rate,
and mitigate the "excessive" demands straining India's limited foreign exchange reserves,
thereby reducing the Balance of Payments (BOP) deficit. Following the rupee's devaluation
as part of the stabilization policy, the focus shifted to structural adjustments.
The rationale behind structural adjustments argued against utilizing renewed access to foreign
exchange to sustain higher state expenditures. Instead, given that government deficits were
perceived as a key factor in the 1991 crisis, the state was urged to diminish its deficits,
primarily through expenditure cuts. The premise was that private initiative would become the
main driver of growth, as the release of private "animal spirits" would enable the exploitation
of the economy's comparative advantage.
The subsequent analysis in this project delves into how expenditure, revenue, and deficit
patterns have evolved from 1971-72 to 2021–22, providing insights into the transformations
that have occurred over this significant time span.
18
REFERENCES:
● Chandrashekhar, C. P., & Ghosh, J. (2002). The Market that Failed: Neoliberal
Economic Reforms in India.
● Ghosh, C., & Ghosh, A. (2016). Indian Economy: A Macro-theoretic Analysis.
● Khanna, S. (1992). International Trade and Debt: India in the Eighties.
● Kohli, A. (2006). Politics of Growth in India 1980-2005.
● Panagariya, A. (2004). India in the 1980s and 1990s: A Triumph of Reforms.
● De, S. (2012). Fiscal Policy in India: Trends and Trajectory.
● Verghese, S. K., & Varghese, W. (1988). India's Mounting External Debt and
Servicing Burden.
● Bhattacharya, B. B., & Guha, S. (1990). Internal Public Debt of Government of India:
Growth and Composition.
19
ASSESSMENT OF REVENUE RECEIPTS FROM 1971-72 TO 2021-22
After gaining independence in 1947, India inherited a fragile economy, heavily dependent on
agriculture.India's public revenue system was shaped by leaders like Jawaharlal Nehru, who
emphasized a mixed economy. Nehru famously remarked, "Taxation is the price which we pay
for civilization," underlining the importance of taxes in building a modern society. The
government focused on agrarian reforms and aimed to establish a mixed economy with a balance
between the public and private sectors. India adopted a planned economic model with a focus on
industrialization and self-reliance. Public revenue predominantly came from indirect taxes,
especially customs and excise duties.
From the 1970s to the early 1990s, India's public revenue primarily relied on traditional sources
like taxes, especially indirect taxes such as excise duties and customs duties. This era was
marked by a more centralized fiscal system with limited diversification in revenue sources. The
early 1990s heralded a period of economic reforms, opening India's doors to globalization and
liberalization. This phase witnessed a gradual shift towards direct taxation, with income tax
gaining prominence. The government also focused on non-tax revenue sources like dividends
from public sector enterprises and disinvestment proceeds. As India progressed into the early
2000s, the emphasis on widening the tax base intensified. The introduction of the Goods and
Services Tax (GST) in 2017 aimed to streamline indirect taxation, creating a unified market and
boosting revenue collection.
TRENDS IN PUBLIC REVENUE FROM 1971-72 TO 2021-22: Revenue Receipts has

two components tax revenue and non-tax revenue. The tax revenue includes income tax,
corporation tax, excise duty and custom duty. Non-tax revenue comprises interest receipts, net
contribution of public sector undertaking, fiscal services, general services, social and community
services, economic services, and external grants. The Revenue Receipts of the Central and State
government combined has increased from Rs.7009 crores in 1971-72 to Rs.3,688,030 in 2020-
21. During this period, the share of the tax revenue and non-tax revenue in the total revenue
roughly remained at about 80% and 20% respectively with variations in the range of ± 7%.The
share of tax revenue was highest in 2017-18 at 88.2% with the share of non-tax revenue at its
lowest in the last 50 years at 11.8%.
Table 1: Components of Revenue as its percentage
Year Tax revenue Non-tax Revenue receipts Tax revenue as Non-tax revenue as
revenue a % of a % of Revenue
Revenue
1971-72 79.54059 20.45941
123148.6384 31676.25963 154824.898
1981-82 78.98265 21.01735
215957.9434 57466.59203 273424.5354
1991-92 80.67337 19.32663
394329.266 94468.04511 488797.3111
2001-02 77.20548 22.79452
605213.1917 178686.0571 783899.2488
2011-12 1442751.706 249927.3128 1692679.019 85.23481 14.76519
2021-22 82.27311 17.72689
2560550.103 551706.3706 3112256.474
20
Note:
1. Data collected from the Handbook of Statistics (annual publication of the Reserve Bank of India), Database
on Indian Economy maintained by the Reserve Bank of India (CIMS DBIE) and Union Budget of India,
various years.
2. All data in constant prices with base year 2011
2011-12.
Figure 1:: Components of Public Revenue as a % of GDP
Note:
various years.
2011-12.
CHANGES IN THE COMPONENTS OF TAX REVENUE:

"Little else is requisite to carry a state to the highest degree ooff opulence from the lowest
barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being
brought about by the natural course of things." – Adam Smith
The Tax Revenue has two components, namelynamely, Direct Tax and Indirect Tax.Directirect tax is a type
of tax where the incidence and impact of taxation fall on the same entity and tax burden cannot
be shifted by taxpayer to someone else. These are largely taxes on income or wealth, corporation
tax, property tax, inheritance tax and gift tax.Indirect taxes are basically taxes/burden that can be
shifted on to another entity or ultimate buyer, viz; sales tax (CGST/SGST), excise duty, custom
duty.
In the 1970s, India relied heavily on indirect taxes, constituting a major portion of its revenue,
i.e., approximately 80%% of the tax revenue share came from the indirect taxes , until 1990s, after
which it started to decline gradually along with the increase in the share of the direct taxes. The
huge share of indirect tax was due to the extrao
extraordinarily
rdinarily high import duties (some were even
above 200%) prevailing before the 1990s Tax Reform. The high import and customs duties du were
to promote the economic model adopted by India that focused on industrialization and self- self
21
reliance.From 1970s-90s,
90s, there were no significant policy changes in indirect taxes.Direct
taxes taxes
witnessed the all-time high effective marginal tax rate of 97.5% in 1973-74.The The decline in the
direct tax revenue after 1975-76
76 is due to the reduction of marginal tax rate of 85% in 1973-74
1973 to
77% in 1974-75 75 then to 66% in 1976
1976-77. This reduction was on the recommendation of the
Wanchoo Direct Taxes Enquiry CommitteeReport [GoI 1971], which criticized the high tax rates
to be one of the biggest reasons of tax evasion. It was further reduced in 1985-86
86 50% along with
the reduction of wealth tax rate from 5% to 2.5%.
Figure 2: Components of Total Tax Revenue as a % of Total Tax
Note:
various years.
2011-12.
In the 1990s, India initiated significant economic liberalization, dismantling many regulatory
barriers, and opening its economy to foreign investment. This period marked a shift towards
direct taxation and diversification of revenue sources. Privatization and disinvestment became
strategies to boost revenue.These
ese changes are the reason for 1991 to be stated as a landmark year
in the history of India.. The biggest and immediate reason for this was the balance of payments
payment
crisis of 1991 where the foreign rese reserves began to decline sharply, the he Soviet Union was
collapsing at the same time, proving that more socialism could not be the solution for India's ills.
“The tax structure was predominantly based on indirect taxes, which were regressive in nature,"
remarked Dr. Manmohan Singh Singh, the finance minister of the Narashima Rao Congress
government, emphasizing the need for reform
reform. The Tax Reform Committee (TRC) chaired by
Raja Chelliahh was established, which gave the Chelliah Committee Report [Gol 1991-93] 1991
underlying the finesttreatment of tax policy and reform issues in India in the past30 years.
22
Figure 3: Composition of Total Tax Revenue Pre and Post Reform Period
Pre Reform Period
Direct
16%
Tax
Indirect
Tax
84%
Pre Reform Period (1971-72 to 1990--91) Post Reform Period (1991-92 to 2021--22)
Note:
various years.
2011-12.
The TRC recommended reduction of all major taxes, namely individual and corporate income- income
tax, customs and excise duty. It also suggested minimizing of exemptions and concessions,
simplification of tax laws and procedures, computerization and revamping of aadministration
dministration etc.
On the recommendation of TRC, the tax rates were reduced to three brackets of 20 per cent, 30
per cent and 40 per cent and the rate of wealth
wealth-tax
tax was reduced to 1 per cent. Further reductions
in tax rates came in 1997-98,
98, when personal iincome-tax tax rates were reduced to slabs of 10 per
cent, 20 per cent and 30 per cent. The impact of these reforms can easily be illustrated in the
Figure 3, the share of indirect tax fell significantly along with the increase in the share of direct
tax in the tax revenue. Figure 2 clearly depicts this change, the surge in the direct tax even
though the tax rates were reduced was due to certain factors, like: the rapid expansion of the
organized sector, increased integration of the financial sector with the bro broader
ader economy, and
administrative enhancements such as the extension of Tax Deducted at Source (TDS) and
improved tax compliance due to the rationalization of tax rates, stemming from reduced marginal
tax rates. The adoption of ee-payment and e-filing systemss for taxes, along with the
computerization of departmental functions, further streamlined the process, enhancing revenue
collection significantly.
23
Figure 4: Total Tax and its components as a % of GDP
Note:
1. Data collected from the Handbook of Statistics (annual publication of the Reserve Bank of India), Database on Indian
Economy maintained by the Reserve Bank of India (CIMS DBIE) and Union Budget of India, various years.
2011-12.
From the new millennium,, steps taken by the government further widened the tax base. base In 2004-
05, Security
ecurity transaction tax STT @0.1 per cent introduced
introduced, surcharge of 10 per cent on income
exceeding 8,50,000, which was increased to 10,00,000 in 20052005-06.InIn 2005, VAT was introduced
introduc
to replace the archaic sales tax system. It helped eliminate the cascading effect of taxes, where
taxes were levied on top of already taxed components. This move increased efficiency and
reduced the tax burden on businesses, resulting in improved compli compliance
ance and revenue
buoyancy.In 2007-08 08 Compulsory ee-filing
filing of company returns, which was extended to firms in
2008-09
09 and later to all auditable cases having turnover over Rs.40 lakh
lakh.. These reforms caused
the rapid growth in the direct tax such that both direct and indirect taxes have almost equal share
in the tax revenue. In 2017, GST was introduced which further revolutionized India's tax
landscape by subsuming various central and state taxes into one unified tax. It aimed to create a
common national market,, enhance tax compliance, and reduce economic distortions caused by
multiple taxes.
24
REFERENCES:
 A Handbook for Tax Simplification. World Bank (2008).
 Acharya, Shankar (2005). Thirty Years of Tax Reform in India. Economic and Political
Weekly, (May 14): 2061-69.
 Bagchi, Aamresh (1994). India’s Tax Reform: A Progress Report. Economic and Political
Weekly, (October 22): 2809-16.
 Rao, G. M. and Rao, R. K. (2005). “Trends and Issues in Tax Policy and Reform in
India.” Paper Presented at the India Policy Forum. New Delhi. (25 July).
 Website of Ministry of Finance, Govt. of India, www.finmin.nic.in
 Website of Income-Tax Department, Govt. of India, www.incometaxindia.gov.in.
 Website of CBDT, www.irsofficersonline.org.in.
 Kalkikumar S. Soni (2014). “Trends and Composition of Central Government Finances
of India: Pre and Post-Reform Analysis”
 Pratap Singh (2019). Working Paper 448 : “Tax Revenue in India: Trends and Issues”
 Acharya, S. (2005). Thirty Years of Tax Reform in India. Economic and Political
Weekly, 40(20), 2061–2070. http://www.jstor.org/stable/4416644
25
ANALYSING THE EFFECTIVITY OF THE TAX POLICIES OF THE
CENTRAL GOVERNMENT (FROM 1971-72 TO 2021-22)
The examination of tax buoyancy holds paramount significance in the formulation of

effective tax policies. It serves as a key indicator, shedding light on the pivotal role that
revenue policies play in ensuring long-term fiscal sustainability and stabilizing the economy
over the short-term business cycle. The correlation between revenues and output in the long
run is crucial for sustaining fiscal policies, while responsiveness to changes in output in the
short run is essential for the tax system to function as a reliable output stabilizer.
In this context, a profound understanding of how and why revenues respond to fluctuations in
income during the business cycle is imperative, considering the government's intertemporal
budget constraint and tax smoothing objectives.
Historically, many countries have sought to boost economic growth by increasing public
expenditure, anticipating that the subsequent rise in income would generate sufficient
revenues to maintain fiscal balance in the long run. However, some economies have faced
challenges in mobilizing revenues through taxation at a pace commensurate with escalating
spending. Consequently, they have resorted to internal and external borrowing to finance
growing deficits, thereby jeopardizing fiscal sustainability. The pivotal question of whether
heightened economic growth translates into increased revenue, enabling the preservation of
fiscal balances, hinges on a crucial aspect of the tax system: tax buoyancy. This metric
measures how tax revenues fluctuate in response to changes in output.
In our project, we endeavour to analyze the evolution of tax revenues in India following the
implementation of reforms in 1991. By delving into this examination, we aim to unravel the
intricate dynamics of how our tax system has adapted to and influenced the economic
landscape, contributing valuable insights to the broader discourse on fiscal policy and
economic sustainability.
Hypothesis:
Null Hypothesis: Buoyancy of tax revenue in pre and post-liberalisation has remained the
same
Alternative Hypothesis: Buoyancy of tax revenue in pre and post-liberalisation has been
significantly different.
Data:
Secondary data spanning from 1971-72 to 2021-22 on central government’s direct and
indirect tax has been collected from the Handbook of Statistics (annual publication of the
Reserve Bank of India), Database on Indian Economy maintained by the Reserve Bank of
26
India (CIMS DBIE) and Union Budget of India, various years. The data has been indexed
with 2011-12 as the base year. The period under study will help us analyze the buoyancy of
Tax yield pre and post-liberalization with accuracy since there are similar numbers of
observations before and after the reform. Variables used in the model are GDP, tax revenue,
direct tax revenue and indirect tax revenue (all data in constant prices).
Methodology:
The hypothesis is tested using the methodology given below. The responsiveness of
gross tax revenue to changes in gross income is referred to as buoyancy or tax buoyancy.
Tax buoyancy is also defined as the ratio of the proportionate change in gross tax revenue
to the proportionate change in income.
𝑇𝑡 = 𝐺𝑟𝑜𝑠𝑠 𝑇𝑎𝑥 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐼𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟

𝑇𝑡−1= Gross Tax Revenue in the previous year
𝑌𝑡 = GDP at constant prices in the current year
𝑌𝑡−1= GDP at constant prices in the previous year
For estimating the tax buoyancy for time series data, empirical studies have used the
Ordinary Least Squares Method. The functional form of the equation used for measuring the
elasticity and buoyancy coefficients is of type:
𝑏
𝑇 = 𝑎𝑌
Taking log both sides, we get:
𝑙𝑜𝑔𝑇 = 𝑙𝑜𝑔𝑎 + 𝑏𝐿𝑜𝑔𝑌
Where,
T = tax revenue
Y = national income or related variable
a = constant
b = buoyancy/elasticity coefficient
We can interpret the coefficients of the above model in the following manner:
b is the % change in Tax revenue or yield for a 1% change in the GDP
27
To carry out our analysis, we perform three regressions:
● 1971-72 to 1990-91 i.e. the pre-liberalization period
● 1991-92 to 2021-22 i.e. the post-liberalization period
● 1971-72 to 2021-22 i.e. the entire period under study
Results and Interpretation:
Table 1: Results for 1971-72 to 1990-91
28
We can note from the above three tables that for the natural log of GDP the p-value < 0.05 i.e.
it is statistically significant. Hence, we can reject the null hypothesis in favour of the
alternative hypothesis and conclude that the Buoyancy of tax revenue in pre and
post-liberalisation has been significantly different.
Pre-Reform Period (1971-72 Post-Reform Period (1991-92

to 1990-91) to 2021-22)
Buoyancy 1.23 1.12
From the above table, we can conclude that a one per cent GDP growth in the pre-reform
period contributes more to the tax yield than the post-reform period.
29
Interesting Findings:
Pre-Reform Period (1971-72 Post-Reform Period (1991-92

to 1990-91) to 2021-22)
Buoyancy of indirect tax 1.38 0.88
30
In the wake of neoliberal reforms, our regression analysis underscores a significant downturn
in indirect tax buoyancy, plummeting from around 1.4 to 0.88 during the post-reform era.
This decline is primarily ascribed to substantial changes in trade policies, fueled by the
necessity to adhere to IMF guidelines. The Indian government, committed to liberalization,
notably dismantled the "import-quota raj," a move fervently endorsed by advocates of the
reforms, resulting in a reduction in marginal indirect taxes.
It is imperative to acknowledge that tax collection hinges on two pivotal components: the Tax
Rate and the Tax Base. Post-reforms, policymakers strategically chose to diminish the former
in a concerted effort to augment the latter.
In response to this nuanced scenario, the Indian government has taken proactive measures to
bolster indirect revenue. This includes a multifaceted approach, encompassing targeted
reforms in tax rates, the expansion of the tax base, and a keen focus on enhancing economic
activities. The introduction of VAT in 2005, which was later replaced by an all-encompassing
GST was a significant step in this direction, fostering increased economic engagements and
widening the scope of goods and services subject to taxation.
In conclusion, while the post-GST period witnessed a noteworthy enhancement in indirect tax
buoyancy (S MUKHERJEE’2023), the analytical nuances highlight the need for ongoing
evaluation and refinement of strategies to optimize revenue outcomes.
31
REFERENCES:
● Dudine, P., & Jalle, J. T. (Year). How Buoyant is the Tax System? New Evidence
from a Large Heterogeneous Panel. IMF Working Paper.
● Mansfield, C. Y. (Year). Elasticity and buoyancy of tax system: A method applied to
Paraguay.
● Gupta, A. (Year). The Trends and Responsiveness of Personal Income Tax in India.
● Jain, M. M. (1969). Income Elasticity of Indian Tax Structure 1955-56 to 1965-66.
● Vadikar, P. I., & Rami, G. D. (Year). Tax Buoyancy And Tax Elasticity In India: A
Log Regression Model.
● Arya, N. K. (Year). An empirical analysis of tax buoyancy in India.
● Upender, M. (Year). DEGREE OF TAX BUOYANCY IN INDIA: AN EMPIRICAL
STUDY.
● Ahmed, Q. M. (Year). The Determinants of Tax Buoyancy: An Experience from the
Developing Countries.
● Mukherjee, S. (Year). Revenue Performance Assessment of Indian GST.
32
ASSESSMENT OF PUBLIC EXPENDITURE INCURRED BY THE
CENTRAL AND STATE GOVERNMENTS FROM 1971-72 TO 2021-22
Before 1930, there was a laissez-faire or limited government involvement approach. Public
expenditure was considered wasteful. This belief was backed by classical economists like Adam
Smith, David Ricardo and John Stuart Mill. Favourable opinion on public expenditure began in
1936 with Lutz who said, “Well-run government commercial enterprises, reforestation and
reclamation projects, and other forms of state business are the most obvious illustrations. Even
the expenditure on ordinary services may result in the accumulation of certain assets, such as
public buildings, which are a useful addition to the aggregate of community wealth.” Keynes
viewed public spending as the gap between aggregate demand and aggregate supply and hence
considered it an essential tool for stimulating the economy.
In developing countries, like India, public expenditure is a crucial instrument of fiscal policy. It
paves the way for economic development, redistribution of income and thereby mitigates
regional disparities. Article 112 of the Constitution of India mandates the preparation of a budget
document, estimating the past and prospective expenditures of the government, on a yearly basis.
In this document, one of the classifications of public expenditure is Development and
Non-Development expenditure. Development expenditure is incurred on activities that are
directly related to the social and economic development of a country. For example, the
expenditure on agriculture, health and education. Non-development expenditure refers to
spending on essential services like defence, police, administration, interest on public debt, tax
collection charges etc. It does not directly contribute to the economic development of a country.
The Nehru-Mahalanobis strategy of development implemented through a series of successive

Five Year Plans (from 1956-57 to 1990-91) initially aimed at self-reliance but eventually became
highly import intensive. Its critical dependence on external resources for sustaining growth
landed India in a balance of payments crisis. By the end of 1990, India’s foreign exchange
reserves were almost exhausted. It could finance only three weeks’ worth of imports. India
approached the IMF for assistance. IMF in turn made India give up the Nehru-Mahalanobis
strategy. P.V. Narasimha Rao and Dr. Manmohan Singh, Prime Minister and Finance Minister
respectively in the newly elected Congress government (1991), ushered in a new era of economic
liberalization. It aimed at transforming India into a globalized economy, making it more
attractive for private enterprise and foreign investment. The impact of this reform on public
expenditure, specifically Development and Non-Development expenditure, and its contribution
to growth in GDP is what we seek to assess in this portion of the paper.
33
Trends in Public Expenditure incurred by the Central and State Governments from
1971-72 to 2021-22:
Figure 1: Components of Public Expenditure as a % of GDP
— Development Expenditure as a % of GDP

— Non-Development Expenditure as a % of GDP
Note:
various years.
2. All data in constant prices with base year 2011-12.
Figure 2: Composition of Total Public Expenditure Pre and Post Reform Period
Pre Reform Period (1971-72 to 1990-91) Post Reform Period (1991-92 to 2021-22)
Note:
various years.
2. All data in constant prices with base year 2011-12.
34
At the time of independence, India was primarily an agrarian economy with two major
agro-based industries: jute and cotton textiles. However, with the emergence of cheaper
alternatives, India’s export opportunities seemed faint. In addition, more than 80% of the
manufactured items required were imported. The Nehru-Mahalanobis strategy was drawn up to
eliminate India’s dependence on imports and achieve self-reliance. The development strategy
aimed at rapid industrialization by setting up basic industries like the machine-making-machine
sector, power, rail, transport, ports, civil aviation, mining and banking and insurance. Investment
in such sectors of strategic importance was reserved exclusively for the government. It was
reflected in the increasing share of Development Expenditure in GDP in the pre liberalization
period (see Figure 1). However, due to lack of technology, India had to import the machinery and
components required for setting up these industries. Thus, the development strategy became
highly import intensive despite India’s low export potential. Thus, the perpetual trade deficit
coupled with monetization of the fiscal deficit, dissolution of the USSR and the Gulf War
(1989-90) led to the depletion of India’s foreign exchange reserves. In 1991, on IMF’s insistence,
India abolished the Nehru-Mahalanobis strategy and adopted the New Economic Policy which
aimed at reforming the economy through liberalization, globalization and privatization. The
government ensured this by implementing disinvestment policies in order to encourage private
investment. The shrinking role of the state is evident from the decline in the share of
Development Expenditure in GDP in the post liberalization era (see Figure 1).
Post independence, the increase in Non-Development Expenditure was on account of

establishment of an independent democratic state and thereby increase in its activities such as
law and order, defence etc. Through the pre-reform period, especially the late 1980s, the rising
share of Non-Development Expenditure in GDP (as seen in Figure 1) can be explained by the
high rates of interest on external debt, a large proportion of the borrowed funds being lent out to
the marginal sections of the society at nominal interest rates and increasing defence expenditure
due to global tensions. These further contributed to the fiscal imbalance in the economy. Despite
the decline in Development Expenditure’s share in GDP in the post liberalization era, the
Non-Development Expenditure’s share was still on the rise (see Figure 1). This was on account
of the role of the private enterprises in the diversified growth of the economy and the
administrative expenses associated with it. Figure 2 reflects the same results. The post reform
share of Development Expenditure in Total Public Expenditure had declined significantly
compared to its pre reform share.
Therefore, in the post liberalization era, the gap between Development and Non-Development
Expenditure as a share of GDP narrowed (see Figure 1). This continued till 2003-04. In 2003, the
Fiscal Responsibility and Budget Management (FRBM) Act was implemented. It aimed at
reducing the prevalent fiscal deficit to a manageable 3% of the GDP by 2008 by improving the
Interest/GDP ratio. With reforms in place, the Interest/GDP ratio was projected to go down from
4.5% of the GDP in 2003-04 to 3.5% of the GDP in 2008-09. This reduced the pressure on
35
public expenditure arising from the heavy interest burden. The decline in the interest
expenditure/GDP ratio was utilized to deliver a higher non-interest expenditure/GDP ratio. This
is reflected in the decline of the share of Non-Development Expenditure in GDP vis-à-vis the
increase in the share of Development Expenditure in GDP thereby widening the gap between the
two; 2004-05 onwards (see Figure 1). This put the economy on the path of recovery.
Note: Development Expenditure has increased in absolute terms and remained above Non-Development Expenditure
through 1971-72 to 2021-22. However, the corresponding shares in Total Public Expenditure and GDP have
undergone change due to economic reforms.
Contribution of Public Expenditure incurred by the Central and State Governments

to Growth in GDP in the Pre and Post Reform Era:
Hypothesis:
Null Hypothesis: Public expenditure by the Central and State governments does not contribute to
growth in GDP
Alternative Hypothesis: Public expenditure by the Central and State governments contribute to
growth in GDP
Data:
Secondary data spanning from 1971-72 to 2021-22 has been collected from the Handbook of
Statistics (annual publication of the Reserve Bank of India), Database on Indian Economy
maintained by the Reserve Bank of India (CIMS DBIE) and Union Budget of India, various
years. The data has been indexed with 2011-12 as the base year. The period under study will help
us analyze public expenditure’s contribution to growth in GDP pre and post liberalization with
accuracy since there are similar number of observations before and after the reform. Variables
used in the model are GDP, Development Expenditure and Non-Development Expenditure (all
data in constant prices).
Methodology:
The econometric model used in the study is:

ln(GDP) = a + bln(DevelopmentExpenditure) + cln(Non-DevelopmentExpenditure) + u
We can interpret the coefficients of the above model in the following manner:
b is the % change in GDP for 1% change in Development Expenditure
c is the % change in GDP for 1% change in Non-Development Expenditure
36
a and u denote the intercept and error term of the model respectively
To carry out our analysis, we perform Simple Linear Regression using Ordinary Least Square
(OLS) estimates on the following three periods:
1. 1971-72 to 1990-91 i.e. the pre liberalization period
2. 1991-92 to 2021-22 i.e. the post liberalization period
3. 1971-72 to 2021-22 i.e. the entire period under study
Results and Interpretation:
Table 2: Results from 1991-92 to 2021-22
37
Table 3: Results from 1971-72 to 2021-22
We can note from the above three tables that for Development and Non-Development
Expenditure, the p-value < 0.05 i.e. it is statistically significant. Hence, we can reject the null
hypothesis in favour of the alternative hypothesis and conclude that public expenditure by the
Central and State governments contribute to growth in GDP.
Table 4: Contribution of Public Expenditure to Growth in GDP in the Pre and Post Reform
Period
Pre Reform Period (1971-72 to Post Reform Period (1991-92

1990-91) to 2021-22)
% Increase in GDP due to 1% 0.20 0.46

Increase in Development
Expenditure
% Increase in GDP due to 1% 0.48 0.51

Increase in Non-Development
Expenditure
From the above table we can conclude that post reform, GDP increases by more percentage
points for every 1% increase in Development and Non-Development Expenditure than in the
pre-reform period. Due to the volatility and unsustainable nature of the development strategy in
the pre-reform period, the Development Expenditures incurred did not have as much potential to
contribute to the growth in GDP. However, under the emerging market economy and thereby the
diversified and systematic growth in the post reform period, GDP became more sensitive to
increase in Development Expenditure.
Note: The Durbin–Watson d-statistic for 1971-72 to 1990-91 i.e. pre-liberalization era was found to be 1.57 (within
the acceptable range of 1.5-2.5) indicating no autocorrelation. This is synonymous with India being a closed
38
economy pre-liberalization and the key factor for explaining the growth in GDP being public expenditure. However,
the Durbin–Watson d-statistic for 1991-92 to 2021-22 i.e. post-liberalization period was less than 1.5 indicating
positive autocorrelation. This again is synonymous with India being an open economy post-liberalization and its
growth in GDP being explained by factors other than public expenditure like Foreign Direct Investment, foreign
GDP, foreign fiscal policy etc.
39
REFERENCES:
● IMF. Fiscal Policy. Back to Basics. Retrieved from
https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Fiscal-Policy
● Youkta, K., & Nupur, S. . Trend Analysis Of Expenditure Pattern Of Government Of
India During Pre And Post-Economic Reforms.
● Ghosh, C., & Ghosh, A. . Indian Economy: A Macro-theoretic Analysis.
● Joseph, T. J. Changing Role Of The State: An Analysis Of Economic Intervention Of
The Government In India After Liberalization. Journal of South Asian Studies.
● Seshaiah, S. V., Reddy, T. K., & Sarm, I. R. S.. General Government Expenditure and
Economic Growth in India: 1980-81 to 2015-16.
● Vegad, D. . Impact Of Developmental And Non-Developmental Public Expenditure On
The Economic Growth Of India. Birla Institute of Technology and Sciences Pilani,
Rajasthan.
● Joseph, P. S., & Prarthna, P. Trend of Development and Non-development Expenditures
in the Pre-reform and Reform Periods.
40
● Panagariya, A. . India in the 1980s and 1990s: A Triumph of Reforms. IMF Working
Paper. Retrieved from https://dea.gov.in/sites/default/files/7.pdf
● Government of India. Retrieved from
https://archive.mu.ac.in/myweb_test/SYBA%20Study%20Material/S.Y.B.A.%20Econom
ics%20Paper%20-%20III%20-%20Indian%20Economy%20(Eng).pdf
● Government of India. India in the 1980s and 1990s: A Triumph of Reforms. Retrieved
from https://dea.gov.in/sites/default/files/7.pdf
● Devarajan R & Swaroop V . The composition of public expenditure and economic
growth. Retrieved from http://ftp.aefweb.net/WorkingPapers/w77.pdf
41
FROM LEDGER TO LIBERATION: FISCAL RATIOS IN INDIA'S
HISTORICAL MIRROR
FISCAL DEFICIT TO GDP RATIO
● Fiscal deficit is the excess of government expenditure over its income excluding
borrowings.
Fiscal Deficit = Total expenditure - Total receipts (excluding borrowings)
= (Revenue expenditure + Capital expenditure) - (Revenue receipts + Capital

Receipts excluding borrowings)
= Revenue deficit + Capital expenditure - Capital Receipts excluding borrowings
42
"Fiscal deficits are like obesity. You can see your weight rising on the scale and your clothing
size increasing, but there is no sense of urgency in dealing with the problem."
~Martin Feldstein
(Address to Reserve Bank of India, January 12, 2004)
Trend of Fiscal Deficit Pre-Reform (1971-72 to 1990-91)
● The vision of the policymakers, pre-liberalization, needed significant expenditure into

key long-term industries and projects that the private sector could not undertake. Also, to
be in control of the economy, government policies restricted the private sector from
engaging in certain strategic sectors such as banking, civil aviation, mining, etc. As a
result of this approach, most of the capital expenditure was funded by the government
sector which put a lot of burden, thereby running a high level of fiscal deficit.
● Furthermore, the Import Substitution Industrialisation (ISI) strategy, pursued from
the 1950s to the 1980s, aimed at reducing dependence on imports by promoting domestic
industries. The funds allocated for ISI projects added to the fiscal deficit without always
yielding the desired economic outcomes.
● During this period the fiscal deficit was as high as 11.2% of the GDP in 1986-87. In this
period the fiscal deficit had an increasing trend.
● By 1990-91 the Indian economy was burdened with heavy debt rising interest costs and
deficits. The country’s foreign exchange reserves had depleted significantly and the level
of reserves was only sufficient to finance imports for another three weeks. India had to
arrange for emergency funds from the IMF to avoid default on external obligations.
● To tackle these crises, the New Economic Policy measures of 1991 were proposed.
Trend of Fiscal Deficit Post-Reform till FRBM Act (1990-91 to 2002-03)
● The reforms of 1991 can be broadly classified under three heads which are
liberalization, privatization, and globalization. Under liberalization many industries
were freed from the licensing requirement, the investment limit in small-scale industries
was enhanced, free determination of interest rates by commercial banks, and the abolition
of restrictive trade practices. With privatization, the government invited the private sector
to own and manage part of Public Sector Enterprises. And among the measures for
globalization included reducing tariffs, and increasing limits on foreign investment in
India. In addition to the above, the government also brought in reform in the tax structure
and reduced non-capital expenditures like subsidies.
● The new economic policy brought with itself a fresh approach; the government not only
liberalized the licensing it also began with the disinvestment of the public enterprises.
This had twin effects; firstly, it led to lowering the capital expenditure and secondly, it
43
increased the capital receipts. Therefore, a falling fiscal deficit can be observed within the
years of 1991-92 to 1996-97.
● The period from 1996-97 to 2002-03 was characterized by a large rise in public debt
involving large interest payments year on year which led to the diversion of resources
from investment to debt servicing.
● The Asian Financial Crisis in 1997 saw a huge disinvestment. It led to a capital flight as
investors were concerned about the contagion effect. To keep the desired level of
aggregate demand government expenditure rose which resulted in larger government
borrowings.
● Thus, the fiscal deficit started rising after 1997-98. The Government introduced the
Fiscal Responsibility and Budget Management (FRBM) Act, 2003 to check the
deteriorating fiscal situation.
Trend Of Fiscal Deficit Post Frbm Act (2003-04 To 2021-22)
● The FRBM Act gave a medium-term target for balancing current revenues and
expenditures and set overall limits to the fiscal deficit at 3% of GDP. It enhanced
transparency by requiring the government to place before the Parliament, on an annual
basis, reports related to its economic assessments, taxation and expenditure strategy, and
three-year targets for the revenue and fiscal balance. It also required quarterly progress
reviews to be placed in Parliament.
● As a result, the fiscal deficit remained low until 2007-08. The macroeconomic
environment since 2008 has been under a lot of pressure due to the global economic and
financial crisis explaining a huge jump in the fiscal deficit.
● The next sharp hike can be seen in 2020-21 when the fiscal deficit rose to 13% of the
GDP. This is highly attributable to the Covid-19 pandemic. The contraction in tax
revenues alongside a surge in government expenditure shattered the ceiling.
REVENUE DEFICIT TO GDP RATIO
● Revenue deficit is the excess of government revenue expenditure over its revenue
income.
Revenue Deficit = Revenue expenditure - Revenue receipts
44
● The revenue deficit has had a similar trend to that of the fiscal deficit.
● As mentioned earlier, the pre-reform scenario put a lot of pressure on the government
sector. In terms of tax policy, this meant that both direct and indirect taxes were focused
on extracting revenues from the private sector to fund the public sector and achieve
redistributive goals. This increased the revenue receipts resulting in a revenue surplus in
the 1970s.
● In indirect taxes, a major component was the central excise duty. This was initially used
to tax raw materials and intermediate goods and not final consumer goods. But by 1975-
76 it was extended to cover all manufactured goods.
● Revenue deficits doubled from less than 3% in the second half of the 1980s to 6% of the
GDP during the Ninth Plan period. This deterioration in the fiscal stance was due to
spending on social and physical infrastructure crowded out by rising interest and other
current payments.
● One of the objectives of the FRBM Act was to eliminate the revenue deficit by March
2006 which explains the low levels of revenue deficit during this period.
● Thereafter, the financial crisis increased the revenue deficit from 0.2% of the GDP in
2007-08 to 5.8% in 2009-10.
● From 2011-12 to 2019-20, the ratio is at an average of 3.1% of the GDP. In 2017 the GST
regime was introduced. According to a statement by the Finance Ministry, the tax
collection had increased by 11%. This led to an increase in revenue receipts, thereby
resulting in a fall in the deficit.
45
● In one year from 2019-20 to 2020-21 the revenue expenditure increased by 31.18% from
Rs. 23,50,604 crores to Rs. 30,83,519. A large portion of this increase was due to
subsidies. Food subsidies were expanded during the pandemic to mitigate poverty. The
foodgrain subsidy bill surged about 30% from 2020 to 2021. This is attributed largely to
the increase in revenue deficit.
PUBLIC DEBT TO GDP RATIO
A country's gross government debt is the financial liabilities of the government sector. Changes
in government debt over time reflect primarily borrowing due to past government deficits. A
deficit occurs when a government's expenditures exceed revenues. It includes borrowings
through treasury bills including treasury bills issued by state governments, commercial banks,
and other investors. It also includes non-negotiable, non-interest-bearing rupee securities issues
to international financial institutions.
The debt-to-GDP ratio is a metric that helps understand a country's ability to pay back its debts.
Generally, a lower debt-to-GDP ratio is ideal, as it signals a country is producing more than it
owes, placing it on a strong financial footing.
46
India’s public finances paint a mixed picture. Its fiscal deficits and public debts were among the
highest in the developing world; its interest payment/GDP ratio and primary deficits were large.
The pandemic reinforced these trends. At their peak in 2020-21, the debt and deficit stood at 89
and 13 percent of GDP respectively.
In their seminal study of the Indian economy, Joshi and Little called the 1991 crisis a
“policy-induced crisis par excellence". It was caused by more than a decade of imprudence. The
1979 budget was a turning point from the relative conservatism of previous fiscal management.
Over the next decade, the twin—current and fiscal—deficits widened continuously.
The 1979-81 Crisis
In the summer of 1979, India faced a severe economic challenge with a devastating drought and
a global oil shock. The Seventh Finance Commission's recommendations led to an increase in the
states' share of tax revenues, contributing to the central government's fiscal deficit. A "political
awakening" and "political decay" resulted in populist measures, such as increased food grain
prices and fertilizer subsidies, exacerbating the fiscal deficit.
Import liberalization from 1976 led to a surge in imports, but export growth lagged. Remittances
from the Persian Gulf temporarily filled the current account gap, boosting foreign reserves.
However, unsterilized reserve accumulation, combined with rapid monetary expansion, fueled
broad money growth.
The 1979 crisis saw a decline in agricultural production, worsened terms of trade, and a sharp
current account deficit. Inflation soared, and infrastructure deficiencies became more
pronounced. Despite accumulated food reserves, a power and transport crunch ensued, causing
an industrial recession.
The government's response involved an "expansionary adjustment," seeking to increase

investments, especially in the energy sector. In 1980, India approached the International
Monetary Fund (IMF) for a billion-dollar loan, deviating from previous fiscal restraint. The IMF
supported the development of the Oil and Natural Gas Commission.
The 1981 budget aimed to mobilize domestic resources but remained an exception as deficits
persisted at 8-11% of GDP for the next decade. This period marked a departure from traditional
crisis responses, emphasizing investment over fiscal restraint.
India's debt-to-GDP ratio has undergone significant fluctuations from 1991 to 2020, reflecting
the country's economic and fiscal dynamics during this period. The early 1990s marked a turning
point with economic reforms aimed at liberalization and globalization. During this phase, India
witnessed a surge in foreign direct investment (FDI) and economic growth.
47
In the initial years post-1991, the debt-to-GDP ratio exhibited a declining trend as economic
reforms gained traction. The emphasis on privatization and opening up of markets contributed to
higher GDP growth, while fiscal discipline led to a relative reduction in the accumulation of
debt. This trend continued into the early 2000s, signaling positive economic transformations.
However, the early 2000s saw a reversal in this trend. Increased public spending on
infrastructure projects and social welfare schemes, coupled with global economic uncertainties,
contributed to a rise in the debt-to-GDP ratio. The fiscal stimulus during the 2008 global
financial crisis further exacerbated this increase, reflecting the trade-off between short-term
economic stability and long-term fiscal prudence.
Post-2010, efforts were made to address the rising debt burden. Fiscal consolidation measures
were introduced to control the budget deficit and curb the growth of public debt. The
implementation of the Goods and Services Tax (GST) in 2017 aimed to enhance tax revenues
and streamline the indirect tax system, providing a boost to fiscal discipline.
Despite these efforts, the debt-to-GDP ratio remained relatively high, partly due to the challenges
posed by non-performing assets (NPAs) in the banking sector and the need for sustained public
spending. The COVID-19 pandemic in 2020 further strained fiscal resources, leading to an
expansionary fiscal policy and an increase in the debt-to-GDP ratio.
The debt to GDP ratio in India from 1991 to 2020 reflects the complex interplay of economic
reforms, global economic events, and domestic fiscal policies. While the initial years
post-liberalization witnessed a decline in the ratio, subsequent decades saw fluctuations
influenced by factors such as public spending, financial crises, and structural challenges. The
recent trend underscores the delicate balance between stimulating economic growth and
maintaining fiscal prudence, especially in the face of unforeseen events like the COVID-19
pandemic. Addressing the long-term sustainability of India's debt will require continued efforts
to boost economic productivity, streamline public finances, and navigate global economic
uncertainties.
THEORETICAL PERSPECTIVES
There is no agreement among economists either on analytical grounds or based on empirical

results whether financing government expenditure by incurring a fiscal deficit is good, bad, or
neutral in terms of its real effects, particularly on investment and growth. Among the mainstream
analytical perspectives, the neo-classical view considers fiscal deficits detrimental to investment
and growth, while in the Keynesian paradigm, it constitutes a key policy prescription. Theorists
persuaded by Ricardian equivalence assert that fiscal deficits do not matter except for
48
smoothening the adjustment to expenditure or revenue shocks. While the neo-classical and
Ricardian schools focus on the long run, the Keynesian view emphasizes the short-run effects.
49
REFERENCES:
● Investopedia. Components of Public Debt.
● Investopedia. What is the Debt to GDP Trend in India.
● Debi Prasad Bal, Badri Narayan Rath (2013) Public debt and economic growth in India:
A reassessment
● R. Nagaraj What Has Happened since 1991? Assessment of India's Economic Reforms
● S. P. Gupta Debt Crisis and Economic Reforms
● Raja J. Cheliah (1991) The Growth of Indian Public Debt, Dimensions of the Problem
and Corrective Measures.
● Gupta S, Singh K, (2016, November), Fiscal Deficit and its Trends in India, International
Journal of Business and Management Invention
● Raju S, Mukherjee J, (2010, July), International Journal of Business and Management

Invention, Centre for Asian Studies
50
APPENDIX
Secondary data spanning from 1971-72 to 2021-22 has been collected from the Handbook of
Statistics (annual publication of the Reserve Bank of India), Database on Indian Economy
maintained by the Reserve Bank of India (CIMS DBIE) and Union Budget of India, various
years.
1. REVENUE OF THE CENTRAL AND STATE GOVERNMENTS IN CURRENT

PRICES (IN RUPEES CRORES)
YEAR TAX REVENUE OF WHICH: NON-TAX REVENUE

DIRECT INDIRECT REVENUE RECEIPTS
TAX TAX
1971-72 5575 1171 4404 1434 7009
1972-73 6436 1346 5090 1634 8075
1973-74 7389 1552 5837 1597 8986
1974-75 9223 1834 7389 2537 11760
1975-76 11182 2493 8689 2913 14095
1976-77 12332 2585 9747 3427 15759
1977-78 13237 2680 10557 3870 17107
1978-79 15528 2851 12677 4526 20054
1979-80 17683 3096 14587 4862 11109
1980-81 19844 3268 16576 5,797 25,560
1981-82 24142 4133 20009 6,396 30,432
1982-83 27242 4492 22750 7,614 34,752
1983-84 31525 4907 26618 7,897 39,099
1984-85 35814 5330 30484 9,488 45,296
1985-86 43267 6252 37015 11,079 54,069
1986-87 49539 6889 42650 13,654 63,112
1987-88 56976 7483 49493 13,908 70,958
1988-89 66926 9758 57168 15,716 82,658

1989-90 77693 11165 66528 20,597 98,094
1990-91 87722 12260 75462 18,130 1,05,757
1991-92 103198 16657 86541 24,620 1,27,389
1992-93 114166 19387 94779 28,455 1,43,017
1993-94 121961 21713 100248 33,086 1,54,856
1994-95 147849 28878 118971 40,353 1,86,639
1995-96 175259 35777 139482 44,787 2,17,527
1996-97 201056 41061 159995 49,094 2,46,399
1997-98 220659 50538 170121 49,351 2,63,723
1998-99 233017 49119 183898 58,395 2,88,366
1999-00 274583 60864 213719 72,165 3,43,709
2000-01 305322 71762 233558 77,845 3,78,817
2001-02 314535 73109 241426 91,215 4,00,162
2002-03 356277 87365 268912 1,01,832 4,53,850
2003-04 408099 125303 282796 1,10,512 5,18,611
2004-05 485375 156828 328547 1,30,269 6,15,644
2005-06 576594 195428 381166 1,30,460 7,07,054
2006-07 724023 269078 454945 1,53,052 8,77,075
2007-08 877496 355689 521807 1,83,433 10,60,929
2008-09 926304 377986 548318 1,90,794 11,17,098
2009-10 984611 424874 559737 2,25,948 12,10,559
2010-11 1250067 508719 741348 3,28,753 15,78,820
2011-12 1442752 571246 871505 2,49,927 16,92,679
2012-13 1687959 651227 1036732 2,83,660 19,71,619
2013-14 1846545 726773 1119772 3,64,930 22,11,475

2014-15 2020728 803440 1217289 3,66,965 23,87,693
2015-16 2297101 830121 1466981 4,51,272 27,48,374
2016-17 2622145 959627 1662518 5,10,056 31,32,201
2017-18 2978134 1121189 1856945 3,98,282 33,76,416
2018-19 3278947 1246083 2032864 5,18,783 37,97,731
2019-20 3231582 1216203 2015379 17,92,781 38,51,563
2020-21 3193390 1114805 2078585 15,61,514 36,88,030
2021-22* 4026487 1414088 2612399 26,99,799 48,94,050
Note: The data for 2021-22 are Revised Estimates
2. EXPENDITURE OF THE CENTRAL AND STATE GOVERNMENTS IN

CURRENT PRICES (IN RUPEES CRORES)
YEAR DEVELOPMENT NON- TOTAL

EXPENDITURE DEVELOPMENT EXPENDITURE
EXPENDITURE
1971-72 5710 4358 10068
1972-73 6695 4561 11256
1973-74 6864 5380 12244
1974-75 9545 6205 15750
1975-76 11574 7359 18933
1976-77 13134 8062 21196
1977-78 14596 8531 23127
1978-79 17994 9698 27692
1979-80 20298 10819 31117
1980-81 24,480 12,738 37,218
1981-82 28,796 13,609 42,405
1982-83 33,643 16,473 50,116
1983-84 38,352 19,936 58,288
1984-85 46,265 23,390 69,655
1985-86 50,509 27,301 77,810
1986-87 61,721 33,609 95,330
1987-88 66,295 39,027 1,05,322
1988-89 74,428 46,292 1,20,720
1989-90 89,420 54,267 1,43,687
1990-91 97,724 64,360 1,62,084
1991-92 1,09,372 72,319 1,81,691
1992-93 1,18,202 82,795 2,00,997
1993-94 1,29,042 1,00,261 2,29,303
1994-95 1,50,367 1,19,322 2,69,689
1995-96 1,65,361 1,35,274 3,00,635
1996-97 1,85,368 1,54,900 3,40,268
1997-98 201399 1,78,817 3,80,216
1998-99 239720 2,15,662 4,55,382
1999-00 274483 2,57,142 5,31,625
2000-01 308546 2,77,760 5,86,306
2001-02 332224 3,07,864 6,40,088
2002-03 359329 3,39,523 6,98,852
2003-04 417834 3,71,651 7,89,485
2004-05 445354 4,16,340 8,61,694
2005-06 509525 4,40,377 9,49,902
2006-07 588028 5,07,635 10,95,663
2007-08 710271 5,88,779 12,99,050
2008-09 943708 6,37,453 15,81,161
2009-10 1062808 7,68,734 18,31,542
2010-11 1267697 8,52,046 21,19,743
2011-12 1420938 9,69,588 23,90,526
2012-13 1574162 10,85,047 26,59,209
2013-14 1714221 12,42,783 29,57,004
2014-15 1872062 13,66,769 32,38,831
2015-16 2201287.24 15,10,810 37,12,097
2016-17 2537905 16,72,646 42,10,551
2017-18 2635110 18,12,455 44,47,565
2018-19 2882757.842 20,78,276 49,61,034
2019-20 3074491.769 22,53,027 53,27,519
2020-21 3823423 24,42,941 62,66,364
2021-22* 4489442 28,64,084 73,53,526
Note: The data for 2021-22 are Revised Estimates
3. GDP DEFLATOR (ALL DATA IN RUPEES CRORES)
YEAR GDP IN GDP IN GDP DEFLATOR

CURRENT CONSTANT
PRICES PRICES (BASE
YEAR: 2011-12)
1971-72 50,120 11,07,121 0.045270496
1972-73 55,245 11,00,995 0.050177638
1973-74 67,241 11,37,279 0.059124169
1974-75 79,378 11,50,759 0.068978699
1975-76 85,212 12,56,053 0.06784146
1976-77 91,812 12,76,942 0.07189964
1977-78 1,04,024 13,69,581 0.075952788
1978-79 1,12,671 14,47,819 0.077821441
1979-80 1,23,562 13,71,980 0.090061231
1980-81 1,47,063 14,64,394 0.100425766
1981-82 1,72,776 15,52,348 0.111299449
1982-83 1,93,255 16,06,304 0.120310099
1983-84 2,25,074 17,23,386 0.130600053
1984-85 2,52,188 17,89,232 0.1409478
1985-86 2,84,534 18,83,243 0.151087282
1986-87 3,18,366 19,73,197 0.161345203
1987-88 3,61,865 20,51,442 0.176395311
1988-89 4,29,363 22,48,950 0.190917082
1989-90 4,93,278 23,82,703 0.207024391
1990-91 5,76,109 25,14,549 0.229110382
1991-92 6,62,260 25,41,123 0.260617227
1992-93 7,61,196 26,80,438 0.283981959
1993-94 8,75,992 28,07,779 0.311987643
1994-95 10,27,570 29,94,747 0.34312415
1995-96 12,05,583 32,21,584 0.37422047
1996-97 13,94,816 34,64,798 0.402567739
1997-98 15,45,294 36,05,116 0.428639117
1998-99 17,72,297 38,28,072 0.462973829
1999-00 19,88,262 41,66,694 0.477179697
2000-01 21,39,886 43,26,736 0.494572754
2001-02 23,15,243 45,35,456 0.510476315
2002-03 24,92,614 47,07,984 0.529444001
2003-04 27,92,530 50,78,049 0.549921826
2004-05 31,86,332 54,80,380 0.581407115
2005-06 36,32,125 59,14,614 0.614093271
2006-07 42,54,629 63,91,375 0.66568289
2007-08 48,98,662 68,81,007 0.711910634
2008-09 55,14,152 70,93,403 0.777363472
2009-10 63,66,407 76,51,078 0.832092751
2010-11 76,34,472 83,01,235 0.919679072
2011-12 87,36,329 87,36,329 0.999999989
2012-13 99,44,013 92,13,017 1.079343862
2013-14 1,12,33,522 98,01,370 1.146117514
2014-15 1,24,67,959 1,05,27,674 1.184303335
2015-16 1,37,71,874 1,13,69,493 1.211300613
2016-17 1,53,91,669 1,23,08,193 1.250522211
2017-18 1,70,90,042 1,31,44,582 1.300158637
2018-19 1,88,99,668 1,39,92,914 1.350659951
2019-20* 2,01,03,593 1,45,34,641 1.383150307
2020-21* 1,98,29,927 1,36,87,118 1.448802214
2021-22* 2,34,71,012 1,49,25,840 1.572508577
Note: The data for 2019-20, 2020-21 and 2021-22 are Revised Estimates
4. FISCAL DEFICIT/GDP, REVENUE DEFICIT/GDP AND PUBLIC DEBT/GDP

RATIOS
YEAR FISCAL REVENUE PUBLIC

DEFICIT/GDP DEFICIT/GDP DEBT/GDP
1971-72 0.055 0.002 0.419
1972-73 0.064 0.002 0.429
1973-74 0.048 -0.002 0.361
1974-75 0.045 -0.015 0.338
1975-76 0.048 -0.022 0.361
1976-77 0.058 -0.015 0.366
1977-78 0.055 -0.014 0.386
1978-79 0.074 -0.013 0.386
1979-80 0.075 -0.007 0.406
1980-81 0.082 0.004 0.603
1981-82 0.074 -0.006 0.608
1982-83 0.081 0.002 0.664
1983-84 0.086 0.01 0.655
1984-85 0.102 0.02 0.691
1985-86 0.103 0.018 0.749
1986-87 0.112 0.024 0.794
1987-88 0.106 0.028 0.83
1988-89 0.099 0.029 0.82
1989-90 0.104 0.032 0.843
1990-91 0.11 0.041 0.829
1991-92 0.083 0.033 0.867
1992-93 0.08 0.031 0.853
1993-94 0.092 0.042 0.852
1994-95 0.083 0.037 0.824
1995-96 0.076 0.032 0.79
1996-97 0.074 0.036 0.758
1997-98 0.086 0.041 0.786
1998-99 0.105 0.063 0.797
1999-00 0.098 0.061 0.834
2000-01 0.097 0.066 0.882
2001-02 0.102 0.069 0.944
2002-03 0.098 0.066 0.996
2003-04 0.087 0.058 0.995
2004-05 0.073 0.037 0.985
2005-06 0.065 0.027 0.966
2006-07 0.052 0.013 0.912
2007-08 0.041 0.002 0.87
2008-09 0.086 0.044 0.865
2009-10 0.095 0.058 0.832
2010-11 0.07 0.033 0.771
2011-12 0.078 0.042 0.763
2012-13 0.069 0.035 0.748
2013-14 0.067 0.033 0.742
2014-15 0.067 0.033 0.731
2015-16 0.069 0.025 0.749
2016-17 0.07 0.023 0.743
2017-18 0.059 0.027 0.746
2018-19 0.059 0.025 0.749
2019-20 0.073 0.039 0.792
2020-21 0.132 0.092 0.938
2021-22 0.105 0.053 0.89

A Systematic Exploration of India's Fiscal Landscape Pre and Post Liberalisation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

A Systematic Exploration of India's Fiscal Landscape Pre and Post Liberalisation

Uploaded by

Copyright:

Available Formats

Beyond Reform: A Systematic Exploration of

India's Fiscal Landscape Pre and Post

SERIAL NO. TOPIC DONE BY PAGE NO.

3 ANALYSING THE ANIRBAN LALA 5-19

4 ASSESSMENT OF NIDHI SONI, 20-32

5 ASSESSMENT OF ADITI SARKAR, 33-41

6 FROM LEDGER TO SUKANYA 42-50

● In the study conducted by Charles Y. Mansfield (1972), a comprehensive regression

● M Upender (2008) attempted to provide empirical content to the differential coefficient

● Shantayanan Devarajan, Vinaya Swaroop, Heng-fu Zou (1996) used an analytical

Overview of the Economy in the Pre-Liberalisation period:

denotes the price of imported intermediate inputs in foreign currency.

From equation (iv) we can get 𝐼 , it is given by:

Using equation (v) in (i), we get:

Problems in the Economy in the 1970’s:

1971-72 and 1972-73 (Bangladesh liberalisation movement- a burden on India):

Gross Aid 791 778 666 999

Total debt service 450 450 507 595

Net Aid Flow 341 328 159 404

Clearly, 𝑀 < 1, a ceteris paribus increase in autonomous imports results in a fall of Y.

(data retrieved from the economic survey and indiastat )

(computed using data collected from economic survey reports)

1971 12688 139.88

1972 12310 144.25

1973 13443 244.56

1974 13973 899.36

1975 13600 992.02

India’s Growth experience in the latter half of the 1970s:

YEAR INDUSTRIAL GROWTH Gross Investment/GDP

(data collected from Indiastat)

(RBI, various issues)

In navigating these economic uncertainties, proponents of neo-liberal reform seized the

Economic Reforms in India.

● Ghosh, C., & Ghosh, A. (2016). Indian Economy: A Macro-theoretic Analysis.

● Khanna, S. (1992). International Trade and Debt: India in the Eighties.

● Kohli, A. (2006). Politics of Growth in India 1980-2005.

● Panagariya, A. (2004). India in the 1980s and 1990s: A Triumph of Reforms.

● De, S. (2012). Fiscal Policy in India: Trends and Trajectory.

Growth and Composition.

TRENDS IN PUBLIC REVENUE FROM 1971-72 TO 2021-22: Revenue Receipts has

Figure 1:: Components of Public Revenue as a % of GDP

CHANGES IN THE COMPONENTS OF TAX REVENUE:

Pre Reform Period

The examination of tax buoyancy holds paramount significance in the formulation of

𝑇𝑡 = 𝐺𝑟𝑜𝑠𝑠 𝑇𝑎𝑥 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐼𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑌𝑒𝑎𝑟

Results and Interpretation:

Table 1: Results for 1971-72 to 1990-91

Table 2: Results for 1991-92 to 2021-22

Pre-Reform Period (1971-72 Post-Reform Period (1991-92

Buoyancy 1.23 1.12

Table 4: Results for 1971-72 to 1990-91

Table 5: Results for 1991-92 to 2021-22

Pre-Reform Period (1971-72 Post-Reform Period (1991-92

Buoyancy of indirect tax 1.38 0.88

from a Large Heterogeneous Panel. IMF Working Paper.

● Mansfield, C. Y. (Year). Elasticity and buoyancy of tax system: A method applied to

● Jain, M. M. (1969). Income Elasticity of Indian Tax Structure 1955-56 to 1965-66.

Log Regression Model.

● Arya, N. K. (Year). An empirical analysis of tax buoyancy in India.

● Upender, M. (Year). DEGREE OF TAX BUOYANCY IN INDIA: AN EMPIRICAL

● Ahmed, Q. M. (Year). The Determinants of Tax Buoyancy: An Experience from the

● Mukherjee, S. (Year). Revenue Performance Assessment of Indian GST.

The Nehru-Mahalanobis strategy of development implemented through a series of successive