Fiscal Imbalance, Adjustment and Recovery

Fiscal adjustment is necessary at Central and State levels for the attainment of macroeconomic stability and growth. The significant share of all State deficits in the combined deficits necessitates the need for fiscal adjustment at State level in India. Both the revenue and expenditure side reforms especially introduction of fiscal rules are part of these adjustment measures. As a result, majority of the States have attained improvement in their deficit indicators. However, some states are still continuing with higher deficits. The improvement in deficit indicators by reduction in developmental expenditure especially health and education has a negative impact on the social and economic development of a nation, which in turn becomes detrimental to the macro-economy in the long run.