India Rising - Faster Growth, Lower Indebtedness

India Rising - Faster Growth, Lower Indebtedness

Over the past 25 years, India's economy grew at an average real rate of close to 6 percent, with growth rates in recent years accelerating to 9 percent. Yet by 2005-06, the general government debt-to-GDP ratio was 34 percentage points higher t...

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Bibliographic Details
Main Authors:	Pang, Gaobo, Pinto, Brian, Wes, Marina
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING ACCOUNTING FRAMEWORK ADVERSE EFFECT AGRICULTURE BALANCE SHEETS BANK BAILOUTS BANKS BENCHMARK BUDGET CONSTRAINTS CAPITAL ACCOUNT LIBERALIZATION CAPITAL EXPENDITURES CAPITAL INFLOWS COMMERCIAL BANKS COMMODITIES COMPETITIVENESS CONSOLIDATION CONSUMERS CORPORATE INCOME TAX CURRENT ACCOUNT CURRENT ACCOUNT SURPLUSES DEBT DEBT DECOMPOSITION DEBT DECOMPOSITIONS DEBT DYNAMICS DEBT HOLDERS DEBT INTOLERANCE DEBT SERVICE DEBT SERVICE OBLIGATIONS DEBT STOCK DEBT SUSTAINABILITY DEFICITS DEREGULATION DEVELOPMENT POLICY DIVESTMENT DOMESTIC INVESTMENT ECONOMIC OUTCOMES ECONOMIC REFORM ECONOMIC TRENDS EXCHANGE RATES EXCISE TAXES FINANCIAL INSTITUTIONS FINANCIAL PERFORMANCE FINANCIAL SECTOR FISCAL DEFICITS FIXED ASSETS FIXED CAPITAL FOREIGN COMPANIES FOREIGN COMPETITION FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN FIRMS FOREIGN INVESTMENT FORMAL ANALYSES GDP GOOD INVESTMENT CLIMATE GOVERNMENT DEBT GOVERNMENT DEFICIT GOVERNMENT SPENDING GROSS FIXED CAPITAL FORMATION GROWTH POTENTIAL GROWTH RATE HARD BUDGET CONSTRAINTS IMPORT BARRIERS IMPORT TARIFFS INFLATION INSURANCE INTEREST COVERAGE RATIO INTEREST PAYMENTS INTEREST RATES INVENTORY INVESTMENT ACTIVITY INVESTMENT CLIMATE INVESTMENT DECISIONS INVESTMENT GROWTH INVESTMENT PROJECTS LATIN AMERICAN LIQUIDITY MATURITY STRUCTURE OF DEBT MONOPOLY NET SALES OPEN ECONOMY POLITICAL ECONOMY PRIVATE INVESTMENT PRIVATE SECTOR PRIVATIZATION PRODUCTIVITY GROWTH PROFIT MARGIN PROFIT MARGINS PROFITABILITY PROTECTIONISM PUBLIC PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC FINANCES PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC SECTOR PUBLIC SPENDING REAL GDP REAL INTEREST RATE REAL INTEREST RATES REAL SECTOR RECAPITALIZATION RECAPITALIZATION COSTS REGULATORY BURDEN RESERVE BANK RESERVE BANK OF INDIA RESOURCE ALLOCATION REVENUE MOBILIZATION SOVEREIGN DEBT TAX TAX RATES TAX SYSTEM TOTAL FACTOR PRODUCTIVITY TRADE LIBERALIZATION TROUGH VALUE ADDED WORKING CAPITAL
Online Access:	http://documents.worldbank.org/curated/en/2007/06/7680962/india-rising-faster-growth-lower-indebtedness http://hdl.handle.net/10986/7097

Description
Summary:	Over the past 25 years, India's economy grew at an average real rate of close to 6 percent, with growth rates in recent years accelerating to 9 percent. Yet by 2005-06, the general government debt-to-GDP ratio was 34 percentage points higher than in the 1980s. The authors examine the links between public finances and growth in the post-1991 period. They argue that the main factor in the deterioration of government debt dynamics after the mid-1990s was a reform-induced loss in trade, customs, and financial repression taxes. Over time, these very factors plus lower entry barriers have contributed to stronger microfoundations for growth by increasing competition and hardening budget constraints for firms and financial sector institutions. The authors suggest that the impressive growth acceleration of the past few years, which is now lowering government indebtedness, can be attributed to the lagged effects of these factors, which have taken time to attain a critical mass in view of India's gradual reforms. Similarly, the worsening of public finances during the late 1990s can be attributed to the cumulative effects of tax losses, the negative growth effects of cuts in capital expenditure that were made to offset the tax losses, and a pullback in private investment (hence, growth and taxes), a situation which is now turning around. Insufficient capital expenditures have contributed to the infrastructure gap, which is seen as a constraint especially for rapid growth in manufacturing. The authors discuss ongoing reforms in revenue mobilization and fiscal adjustment at the state level, which if successfully implemented, will result in a better alignment of public finances with growth by generating further fiscal space for infrastructure and other development spending.

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