Consequences of fiscal optimism for fiscal planning and fiscal discipline: Some insights from India

This paper attempts to empirically analyse the impact of India’s medium term perspective on its fiscal management, and their subsequent implications for subnational Governments’ situation. Using graphical analysis, exploratory statistics regression techniques, this endeavours investigate revenue forecast error Centre’s primary balance, in turn States’ imbalance. The illustrative empirical exercises reveal that optimistic macro-fiscal forecasting has been a predominant feature policy ever since it adopted discipline. errors are found have serious consequences balance debt accumulation pronouncing even stronger over longer horizons. forecast-error-induced at Centre leads significant deterioration quality deficit State Governments. Financial irregularity emerges as an important determinant error. paper, though nature, provides useful insights better planning management era consolidation India.