Question 1 · 10 marks · 172 words written
Opening · a figure
India is currently having 5.6% Fiscal Deficit, which is expected to reduce to 5.1% in FY25.
Body · points
Factors contributing to High Fiscal Deficit
- High revenue expenditure of the government [₹ 37 Lakh crore] in Budget.
- Low tax-to-GDP ratio. [Data 11.7% {china = 20%}]
- Post-pandemic fiscal challenges.
- High subsidy burden on Government [Ex 2.1 Lakh Crore ₹ food subsidy].
Potential consequences of such deficit.
- Debt-burden would increase. [Data Already 81% Debt-to-GDP.]
② Sovereign rating would decrease. ③ FDI outflow could happen. ④ Low fiscal capability for capital expenditure. [Ex Infrastructure of Railway]. ⑤ Inter-generation equity issues. ↳ debt servicing by next generation. ⑥ Crowding-out effect → leading to cost push inflation.
Measures for fiscal consolidation.
① Improving tax compliance. ↳ Digitisation. ↳ Auditing. (random) ② Reducing the revenue expenditure and more focus on capital expenditure. ③ Reducing the freebie politics and populist measure. [Subramania Balaji Judgement] ④ Privatisation of loss-making CPSEs. ⑤ Mobilising finance from disinvestment.
Close · a summary
Above steps would ensure fiscal consolidation, necessary to achieve a sustainable economic growth.