Abstract:
Growth with stability is one of the goals of fiscal policy and making
this growth process inclusive should be an important additional
consideration. The two objectives need not be mutually exclusive. A
brief investigation of the fiscal consolidation process in both the
countries highlights a weak relationship between GDP growth and
contractionary fiscal policy. Fiscal Consolidation process in Sri
Lanka, which initially was successful in reducing the debt and deficit
burden, has led to a larger decline in expenditure ratios as compared
to tax revenues and tax revenues have declined despite increase in
per capita income in the last 10 years. For India, initial success of
fiscal consolidation process appeared to be inadequate in later years
with growth slowdown; deficit and debt levels remained high while
qualitative expenditure management exhibited structural rigidities.
India and Sri Lanka appears to be following the same pattern of fiscal
consolidation of broad reduction in almost all fiscal ratios with
respect to GDP but Sri Lanka has been able to successfully maintain
the capital expenditures and create a crowding in effect for private
investment as compared to India. Given the country specific effects,
India needs a larger expenditure restructuring
