Question 1 · 10 marks · 150 words written
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 →
Optimum utilization of macro-economic potential.
Fiscal deficit's strict targetting (4.5%) under FRBM leads to low borrowing.
Lower debt-to-GDP allows more 'fiscal space' for the government.
Ensure more funds for capital expenditure without any restrictions.
Serves as ideal anchor based on global best practices.
Allows for 'crowding-in' of private sector due to robust fiscal health.
Ensure 8% growth for high income status and avoid the 'middle income trap'.
However, challenges persist →
FRBM Act based on India's macro-economic framework → violations hinder economic credentials.
Unsustainable levels of debt if huge debt created.
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.