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This paper examines the recent evolution of fiscal and monetary policy in India since the 1991 economic reforms, along with their impact on employment and decent work outcomes. To achieve macroeconomic stability objectives and attract foreign direct investment (FDI), the Government of India committed itself to reducing the fiscal deficit to three per cent of [gross domestic product] GDP through the Fiscal Responsibility and Budget Management (FRBM) Act, while the Reserve Bank of India (RBI) adopted an inflation-targeting framework with a target of three per cent. However, the government has not been successful in achieving either of these aims, in part due to the largely successful stimulus package enacted in the wake of the 2008-09 global financial crisis. Nevertheless, the paper argues that the continual focus on attaining these macroeconomic stability aims has resulted in limited progress in supporting employment creation or achieving decent work goals.

To address these problems, the paper recommends that the Government of India (i) diversify its sources of tax revenue and (ii) use public investment to overcome key supply-side bottlenecks. The latter measure would reduce inflationary pressure and facilitate job creation and the attainment of decent work objectives.

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