The Quest for the Holy Grail : Efficient and Equitable Fiscal Consolidation in India

Achieving fiscal consolidation without undermining growth and poverty-reduction efforts isa key policy challenge in many countries. Using India as an illustration, this paper showshow a mix of well-designed taxation and spending policies can help address these challenges.On the tax side, the analysis focuses on increasing consumption taxes on goods with negativeconsumption externalities. On the spending side, some of the additional revenues from thetax reform are allocated to scaling up key social transfer programs. Substantial additionalgains are possible if the increased social transfers can be accompanied by improved targeting.