Institute for Social and Economic Change

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Assessment of India’s Fiscal and External Sector Vulnerability: A Balance Sheet Approach – isec

Assessment of India’s Fiscal and External Sector Vulnerability: A Balance Sheet Approach

Abstract

The paper is an attempt to assess India’s fiscal and external sector vulnerability in the context of deterioration of major macroeconomic indicators in recent years. The analysis is based on the Balance Sheet Approach developed mainly by the IMF studies in analyzing the episodes of major fiscal, financial and external payment crisis in developing countries since late 1990s to early 2000. The present work assesses the vulnerability in India’s fiscal and external sector by descriptive and comparative analyses of relevant indicators, and developing a composite vulnerability index consisting of the indicators under study. If the inability to smooth financeability of public debts, budgetary deficits and external sector financing needs as the indicators of fiscal and external sector vulnerability, India does not face risk of such threat at present and hence signify an absence of overall macroeconomic vulnerability than generally perceived.

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