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

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PANCHAYATIRAJ-Delinquent States

more impressive.
There are however a number of problems. First, a government which refuses to tax and has to borrow to finance its expenditures can hardly treat interest payments as an externally given and unavoidable outflow which does not reflect its fiscal strategy. So the primary deficit is by no means an indicator of fiscal prudence. Second, what the primary deficit actually reflects is the fiscal stimulus to real activity provided by the government, since it is that component of the deficit which constitutes actual deficit-financed expenditure. What the figures show is that there is no such stimulus being provided despite the huge stocks of foodgrains the government has accumulated and the large volume of foreign exchange reserves at its command. Finally, an examination of the components of the primary deficit shows that the primary deficit financing consumption rose from 1.2 percentofGDPin 1990-91 to 1.5 percent of GDPin 1993-94, and then declined to 0.8 per cent in 1994-95. During those years the primary deficit devoted to financing capital expenditures actually fell sharply from 3.1 per cent of GDP to I per cent of GDP. That is, not only is the fiscal stimulus weak, but it is increasingly not contributing to the creation of physical assets that can relax supply constraints in the future.

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