The progress on fiscal correction was mixed during the 1990s, both at the Central and State levels (Chart 1 and Tables 2-3). While there was some reduction in the Centre’s fiscal deficits upto 1996-97, the process was reversed over the next few years under the impact of the industrial slowdown and the Fifth Pay Commissions’ award.
Furthermore, fiscal consolidation, which was envisaged to be achieved through revenue enhancement and curtailment in current expenditure growth, was, however, brought about instead through compression of capital expenditures from 5.6 per cent of GDP in 1990-91 to 3.1 per cent in 1996-97, with consequential effects on growth and infrastructure constraints in ensuing years.