GS3 · 10 marks · 150 words

Fiscal policy can be a key tool to reduce income inequality as well as make the poorest and the downtrodden a part of the country's growth story. Discuss in the context of India.

Answered by 5 toppers · CSE 2022–2025

Fiscal Policy and BudgetingInclusive GrowthTaxationMacroeconomic Indicators

Syllabus: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

How toppers approached it

From all 5 answers · about 160 words · 60% drew a diagram.

Opening

  • A definition80%
  • A figure20%

Body

  • Points80%
  • Points and prose20%

Close

  • A way forward60%
  • No separate close20%
  • A summary20%

The toppers’ answers

AnanyaAIR 13 · CSE 2025 · 196 wordsTheir whole copy

Opening · a figure

In India, 10% of the people own 78% of the wealth (Oxfam Report). This shows stark income inequality existing in India. To counter it, fiscal policy can be a key tool.

Body · points

Diagram
Fiscal Policy tool → decided by Govt. of India → Included taxes, subsidies, etc

Fiscal Policy → Reducing Inequality

  1. Tools like progressive taxation can help reduce the income inequality → Eg, in India, the income tax is progressive in nature.
  2. Reducing indirect taxes on necessary goods can reduce burden on poor → Eg, less tax on sugar, salt.
  3. Rationalisation of subsidies to poor → benefit to poor → less burden on govt.
  4. More revenue spending on indirect subsidies (to farmers) than direct (eg) more subsidy on inputs to farmer → promotes growth.
  5. Rationalisation of taxes on elderly.
  6. Reducing corporate tax (Present ≈ 22%) less tax → more investment → more employment → less inequality to people.

Issues with fiscal tool:

  1. Fiscal constraints of govt.
  2. High Fiscal Deficit (≈ 6.9% of GDP).
  3. Unsustainable steps → misuse of fiscal tools (eg) Farm loan waivers → add to fiscal burden.
  4. Often politicised.

Close · a way forward

Hence, way forward is rational usage of fiscal policy. The establishment of Independent Fiscal Council can be a positive step.

More on Fiscal Policy and Budgeting

The Union and State budgets, fiscal deficit, FRBM, off-budget borrowing, counter-cyclical spending, devolution of revenue.

All GS3 questions on Fiscal Policy and Budgeting