in 1997 PC did what is called a dream budget, what he did is simple but profound
1) he reduced government expenditures
2) he reduced Government revenue
by cutting taxes across the board and led a tight government for next 2 yrs
Luckily for India, BJP govt for next 6 yrs did the same thing, no populist measures.Yashwant Sinha under Chandrasekhar govt was the original architect of fiscal discpline. During the same period from 1997-2002, the GDP growth was only 4% , it is becoz Indian government was always mover/spender in economy but here government is cutting itself down. Poverty also fell faster becoz inflation was also very low around 3-6% during these last 12 yrs. it proves that low inflation in western countries like 1-2% is also the reason for their very low steady poverty. (Assuming Population growth is also below 2-3%. During 1950-1962, India experienced similar growth)
In 2003, Poverty rate touched like 25% way down from 50-60% seen in 80's. Jaswant Singh Introduced two important laws one for tough laws for capturing non-performing loans of banks and two to refinance the state governments old debts, low inflation rate led to low interest rates, indeed some of the state government borrowed "hundred" crores in 1970's at 30-40% interest rate and it was still paying for in 2001. Govt in 2001 introduced $5bn USD bond and cut interest payments and freed additional funds of state governments by 60-80%.
This led to more funds for state governments, so govts borrowed even less and that means banks had more money from both loan recovery and less govt borrowing. Banks also did VRS , which improved their productivity. this led to robust growth rate of 8% from 2003, this is driven by people taking loans from banks to finance homes, cellphones, cars ...etc. thereby creating more employment and low inflation.
NEXT As it is in US government
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