Economic Policy in India: For Economic Stimulus, or for Austerity and Volatility?

Levy Economics Institute of Bard College Working Paper No. 813

29 Pages Posted: 8 Aug 2014

See all articles by Sunanda Sen

Sunanda Sen

Bard College - The Levy Economics Institute

Zico Dasgupta

Azim Premji University

Date Written: August 6, 2014

Abstract

The implementation of economic reforms under new economic policies in India was associated with a paradigmatic shift in monetary and fiscal policy. While monetary policies were solely aimed at “price stability” in the neoliberal regime, fiscal policies were characterized by the objective of maintaining “sound finance” and “austerity.” Such monetarist principles and measures have also loomed over the global recession. This paper highlights the theoretical fallacies of monetarism and analyzes the consequences of such policy measures in India, particularly during the period of the global recession. Not only did such policies pose constraints on the recovery of output and employment, with adverse impacts on income distribution; but they also failed to achieve their stated goal in terms of price stability. By citing examples from Southern Europe and India, this paper concludes that such monetarist policy measures have been responsible for stagnation, with a rise in price volatility and macroeconomic instability in the midst of the global recession.

Keywords: Austerity, Development Expenditures, Exchange Rate Volatility, Fiscal Deficit, Fiscal Policy, FRBMA, Inflation, Interest Payments, Interest Rates, Monetarism, Monetary Policy, Sound Finance

JEL Classification: : E12, E31, E44, E50, E51, E52, E58, E62, E64

Suggested Citation

Sen, Sunanda and Dasgupta, Zico, Economic Policy in India: For Economic Stimulus, or for Austerity and Volatility? (August 6, 2014). Levy Economics Institute of Bard College Working Paper No. 813, Available at SSRN: https://ssrn.com/abstract=2477141 or http://dx.doi.org/10.2139/ssrn.2477141

Sunanda Sen (Contact Author)

Bard College - The Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

Zico Dasgupta

Azim Premji University ( email )

Trinity Sunrise Apartment, Flat A-106
Kadaagrahara Road, Sompura Gate
BENGALURU, 562125
India

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