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The management of state
finances is becoming increasingly difficult. The revised estimates of the fiscal
deficit and outstanding debt at 18.49 per cent and 80 per cent, respectively, of
GSDP in 1999-2000 are clear indications of the unsustainability of the present
fiscal stance. A continuation of the present situation will result in the
government being forced to take several strong and unpopular measures in the
future to avert a crisis and restore sustainability. Forced adjustments to deal
with crises are invariably arbitrary, and have adverse and undesirable
consequences. The base scenario presented below is one of the many ways events
could unfold if ‘business carries on as usual’. The idea is not to predict the
shape of the things to come, but to illustrate the adverse consequences of not
initiating on an urgent basis the process of adjustment and fiscal reforms.
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