The whole purpose of legislation such as this Bill therefore is to ensure that the interests of finance capital continue to be served even as people elect one government after another in the fond hope that they would get some succour. There is not an iota of truth in the view that large fiscal deficits are always harmful for an economy. None of these is true. Fiscal deficits can cause inflation, by giving rise to excessive aggregate demand, only in a situation where supplies are short and cannot be augmented. But India, almost throughout the 1990s, has had huge unsold foodstocks and unutilised industrial capacity.
Fiscal deficits have nothing to do with the matter.
If the Fund-Bank theory was correct then countries which had succeeded in curtailing their fiscal deficits should have escaped macroeconomic crises. This has not been the case. Even such surpluses did not insulate these economies against crises, which shows that the whole analysis attributing a causal role to fiscal deficits is bogus. What lies behind our macroeconomic problems, including the high fiscal deficits , is the policy of liberalisation itself. The low private investment, as already mentioned, is because of insufficient demand in the economy, a result, among other things, of reduced government spending owing to the fiscal crisis.