Fiscal policy and its macroeconomic linkages have always been an unsettled issue. In this paper, I have tried to address this
particular issue. The three major debates over the fiscal policy regime are ‘Crowding Out’, ‘Inflation’ and ‘Financing of
Deficit’; this paper has tried to discuss all of them. The paper has tried to highlight the fallacies in economics being followed by
the policy makers in India. The paper clearly spells the desirability of direct taxes over indirect taxes.
Also in this paper, an attempt was made to analyze general trends in fiscal policies in India since 1970s. It is important to
analyze the scenario since 1970s because the roots of fiscal crisis in 1990s lie in 1970s only. Rising revenue deficit was one of
the causes of fiscal crisis in 1990-91 and post-1990 restrictions were imposed by IMF and fiscal deficits were reduced but on the
cost of reduction in social expenditures