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Anant Kumar

Singh PGP31133

Ashok Kumar
PGP31142

Nikhil Yadav
PGP31158

Sneha Khurana
PGP31174

Sushman Das
PGP31180

Fiscal Politics in India

Indias economic reform has been shaped by two changes: 1) Single party dominant system to a
multi-party system with increasing importance of single-state parties in forming governments 2)
Emergence of new interest groups with economic liberalization, reduction in the influence of central
government and increase in autonomy of market institutions, private sector actors, and state
governments.1

The Era of Congress Dominance (1947 1989)


The Central Government led by Nehru had modernizing agenda but the implementation of these
plans was done by power brokers at the local level who did not share the same commitment to
greater good. There were three interlocking interest groups in the country: 1) Richer farmers who
blocked agrarian reform, 2) Industrial business houses taking advantage of state induced scarcities
and which blocked competition and innovation, and 3) Bureaucrats who earned large rental
incomes from the Permit License Quota Raj and enforced unproductive rent seeking behavior
on smaller businesses and ordinary citizens. 2
When Indira Gandhi came to power the dominance of Congress was being challenged and the
pattern shifted from command politics to one of demand politics. Congress created a large
number of Centrally Sponsored Schemes to channel government resources directly to key
segments of the electorate whose support Congress wished to reward or secure.
Later from 1980-89 the government began to tilt economic policy in the direction of big business. A
few joint ventures were brokered in the autos sector and initiatives were introduced that favored
established Indian producers.

Emergence of coalition politics (1989 1998)


There was a rise in single state parties and the formation of the first coalition government took
place in 1989. The 1990s also saw a dispersion of power from cabinet to other central institutions
like Supreme Court, increasing mobility and autonomy of private industry enhanced its power and
influence over public policy and allowed state governments more autonomy with their
developmental strategies. Populism dominated the partisan competition at the state level and
politicians made several fiscally irresponsible promises.

NDA (1999 - 2005)


The NDA government in 1999 was the first stable government in a decade. Its 70 member cabinet
reflected the attempt to cater to aspiration of different coalition partners. Politicians from single
state parties focused on demanding more resources/funds for their native states, blocked policy
initiatives for reducing fiscal deficit like reduction in subsidies, attempts to block disinvestment
decisions, privatization of firms located in their state etc. They also succeeded in increasing MSP of
food grains as against recommendations from CACP.
While the NDA Government couldnt garner support from partners for reduction in Fiscal deficit,
they introduced the FRBM Bill to establish legally binding targets for the reduction of fiscal and
revenue deficits. Ministry of Disinvestment and Cabinet Committee on Disinvestment were created
to facilitate privatization

Coalition is the norm (Post 2005)


The UPA (1&2) launched several schemes targeted at the poorer sections of the society MNREGA,
increasing in MSP, farm loan waiver in 2008/09 budget. A few actions such as the retrospective
1

Corbridge, S. (2009). The Political Economy of Development in India Since Independence. Development Studies
Institute London School of Economics.2 Echeverri-Gent, J. (2001). Political Economy of India's Fiscal and Financial
Reform. Working Paper No. 105 . Stanford.

amendments to tax laws in the 2012 Budget could be deemed to be against the private sector as
well. There was also several corruption scandals creating an unfavorable business environment.
The NDA government under the leadership of Modi has implemented reforms targeted at increasing
the ease of doing business and attracting foreign investors indicating the rise of the interest group
of business houses again. It launched efforts to streamline transfer payments, tax law amendments
and make in India initiatives. The results of these are yet to be seen.

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