ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Deficit and Stabilisation Policy

IN my note on fiscal deceit ('On Defining the Fiscal Deficit EPW, September 21/1991) I attempted to focus on two points. Firstly, if price stability is the objective it is the budget deficit, as defined in India that is relevant and not the fiscal deficit. The present note gives empirical evidence based on international time- series cross-section data to support the above argument. It appears that the conditions for IMF loan require that fiscal deficit of the central government should be gradually reduced in order to contain inflation and to make devaluation effective in reducing the balance of payment deficit. It is argued here that this emphasis on fiscal deficit is misplaced.

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