GS3 · 10 marks · 150 words

The Union Budget 2025-26 outlines a shift towards the 'debt-to-GDP ratio' as the fiscal anchor starting from FY 2026-27. Discuss the rationale behind this shift.

Answered by 3 toppers · CSE 2017–2025

Fiscal Policy and BudgetingMacroeconomic Indicators

Syllabus: Government Budgeting.

How toppers approached it

From all 3 answers · about 200 words.

Opening

  • A figure1 of 3
  • A definition1 of 3
  • A restatement1 of 3

Body

  • Points3 of 3

Close

  • A summary3 of 3

The toppers’ answers

Dishant A NisarAIR 19 · CSE 2025 · 150 wordsTheir whole copy

Opening · a figure

India's debt-to-GDP ratio is around 80% of its GDP and still less than many emerging economies.

Body · points

Budget outlines shift to debt to GDP →

  1. Optimum utilization of macro-economic potential.

  2. Fiscal deficit's strict targetting (4.5%) under FRBM leads to low borrowing.

  3. Lower debt-to-GDP allows more 'fiscal space' for the government.

  4. Ensure more funds for capital expenditure without any restrictions.

  5. Serves as ideal anchor based on global best practices.

  6. Allows for 'crowding-in' of private sector due to robust fiscal health.

  7. Ensure 8% growth for high income status and avoid the 'middle income trap'.

However, challenges persist →

  1. FRBM Act based on India's macro-economic framework → violations hinder economic credentials.

  2. Unsustainable levels of debt if huge debt created.

  3. Hedging against global black-swan events difficult.

Close · a summary

While debt-to-GDP as fiscal anchor would assist government's growth targets, more debate is needed before the switch.

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