ISSN 1688 997 - Empirical Economics Letters Assignment 

Assignment Task

Empirical

The impact of pandemic was all pervasive and unparalleled in the recorded history of mankind in terms of loss of lives, output, employment coupled with enhanced poverty and inequality trajectory. The pandemic is, therefore, named as once in a life time crisis. In order to address the cruelties of the pandemic in terms of protecting lives and providing livelihoods, countries across the world notwithstanding their level of economic growth, engaged themselves in massive fiscal stimulus supports. Fiscal measures announced as of September are estimated at trillion globally, or close to 12 percent of global GDP and the fiscal response, coupled with the sharp decline in output and government revenue, will push public debt to levels close to  percent of GDP in 2020 globally as fiscal deficit relative to GDP touched around 11 per cent the highest ever (IMF, October 2020). Contemporaneous with such worldwide enlargement the fiscal deficit and debt as proportion of GDP (General government both Centre and states)also expanded at 12.3 per cent and around 90 per cent in 2020 (IMF, 2021). The IMF projection further states that the fiscal deficit debt ratio relative GDP will be at 7.4 per cent and about 83 per cent in 2026 in marked contrast to the 15th Finance Commission recommendation of 60 per cent and 6 per cent, respectively.

Objective 

The moot research question in the above context is: should the unbridled expansionary fiscal policy currently in vogue in India be reversed or it should continue? It is important, therefore, to revisit, analyze and assess the underlying issues regarding sustainability of fiscal policy in India during the FRBM period. Accordingly, the research question the present paper seeks to answer to the following research questions:(a)given that the real interest rate in respect of government debt is lower than the real economic growth rate should we conclude that the fiscal policy in India is sustainable? given that the key deficit indicators, viz, fiscal deficit , revenue deficit and primary deficit are at high levels relative

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