Fiscal Discipline and Its Relationship with Economic Growth in India: Evidence-based Policy Analysis

Abstract

This study attempts to make an empirical analysis to evaluate the procedural progress of India in terms of public policy parameters. The study constructs a composite Fiscal Performance Index (FPI) for the period 1990–2018. The reported values show that the FPI has been significantly increasing over the last two-three decades. However, it is clearly evident that the fiscal discipline was slightly poor during the period 1998–1999 to 2003–2004. Since 2003–2004, there has been a consistent increasing trend in the fiscal discipline till 2007–2008 global financial crisis. The constructed index was further utilised to establish its relation with economic growth. The causal relationship from FPI to GDP growth is evident in the long run. The study suggests that, as a federal nation, the Central government should encourage governments at all levels to promote fiscal discipline by formulating macroeconomic policies in line with the Fiscal Responsibility and Budget Management Act, 2003.