Highlighting the factors contributing to high fiscal deficit in India, discuss the potential consequences of such deficit and suggest measures to ensure fiscal consolidation.

Fiscal Deficit refers to the excess of Expenditure of govt over its receipts. For FY23-24, it was ~ 5.6% of GDP (E.S. 23-24)

Factors contributing

1. subsidies burden (Ex: Agri <

• Fertilizer
• MSP
• Irrigation)

1. Social welfare Expenses (Ujjuala, PM-AWAS)

2. Untapped tax Revenue (low base) and non-tax Receipts

3. Freebies culture gaining political momentum.

Potential consequences

1. High Interest burden (~19% of Budget size) → loss of resources.

2. Fall in credit Ratings (BBB-)

3. decline in FDI to India due to debt sustainability concerns.

4. Squeezed space for more critical expenses (like R&D, etc)

Measures Required

1. Rationalizing subsidies (Ex: Shanta Kr. Committee : Reducing PDS coverage to 40% popn)

2. However, boosting Cap Exp. is rather good (& should be promoted over Rev. Exp. for long run capacity + Revenue gain)

CapEx % of GDP | | . 3.4% | . | . | . 2.1% |___________ 20-21 24-25

F.D | | 9.2% . | . | . | . 4.9% |___________ 20-21 24-25 (Projected)

Thus, Debt sustainability is critical to ensure macro-Economic & Financial stability (RBI)