Question 1 · 10 marks · 219 words written
Opening · a definition
The debt to GDP ratio is the cumulative addition of deficits through years. It is stock concept while fiscal deficit is flow concept.
Budget outlines shift towards debt-GDP as fiscal anchor because:
Body · points
Tough to anchor fiscal deficit: years wise control over deficit term is difficult due to multiple & large expenditures (eg) 9.6 %D in COVID.
Mere 0.5% escape clause in FRBM (NK Singh Committee) → so tough for govt to balance public welfare & austerity in finance.
Debt to GDP ratio gives time to fiscal manuever: till 2025 govt in targeting 60% of GDP (Debt/GDP)
Control over debt/GDP is easier than fiscal deficit in long run; in short run fiscal deficit target can be breeched for countercyclical policies like PM-Kisan, MNREGA expenditure during slowdown.
To avoid criticism of fiscal profligacy - difficult to track debt/GDP by public.
Why not target the 'final fiscal anchor' rather then intermediate fiscal deficit?
In the end, stock variable target (debt/GDP 60% Centre, 40% States - FRBM) to be achieved.
Centre-states fiscal tussle over fiscal deficit - though states are within 3%, Centre is constantly deviating 9% → 6.8% → 6.7% → 5.6% from 2020-2025.
Close · a summary
Therefore, to escape the tighter grip over fiscal space, to get fiscal freedom to spend, govt is going for debt/GDP.