India’s Fiscal Policy Needs to Be Progressive and Countercyclical

Abstract

India’s tax policy became more regressive in the pandemic year, and the overall fiscal policy stance is proving to be procyclical. The burden of relying more on higher indirect (fuel) taxes falls more on middle- and lower-income classes, putting consumption recovery at risk. Fiscal policy should be guided by longer-term cost-benefit analysis of increased spending. The timing and pattern of higher public spending are as critical as the way resources are raised.