Fiscal Deficits

Fiscal deficits are like obesity. You can see your weight rising on the scale and your clothing size increasing, but there is no sense of urgency in dealing with the problem.
-Martin Feldstein

The fiscal deficit was as high as 10% of GDP in 2001-2002 and the govt. debt is more than 85% of the GDP

The questions that come to one’s mind when these issues crop up are:
1) Should the fiscal deficits of state and centre considered together or separately are sustainable?
2) Whether these governments are solvent.
3) Whether the presence of high levels of structural fiscal deficits has constrained the usability of fiscal policy as a tool of stabilization in respect of output as well as prices;
4) Whether there is need to formulate rules and targets to stabilize debt and deficits, and how these targets should be derived; and
5) Whether fiscal deficits have crowded out private investment by putting pressure on interest rates, thereby adversely affecting growth.
6) Is the govt. issuing fresh bond to payoff for the interest incurred in servicing the old ones or it is issuing fresh bonds for infrastructure and development?

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