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The Great Reversal
Adverse supply shocks in agriculture have contributed to the slowdown of the Indian economy and the inflation surge. A decline in public capital formation has also played a part in the slowdown. However, the contribution of the widening fiscal deficit is less clear-cut. A revival of growth calls for an easing of the constraints in the farm sector and larger public investment outlays, accompanied by higher public savings.
I thank Bharat Ramaswami and Chetan Ghate for extensive comments on the article, and Govinda Rao, Gurbachan Singh and Rathin Roy for discussions. Ashish Aggarwal assisted with the graphics. None is implicated, however.
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