Question 1 · 10 marks · 155 words written
Opening · a figure
India's fiscal deficit currently stands at 5.1% of GDP far above 3% target (FRBM).
Body · points and prose
Factors responsible
- Global uncertainties -
COVID-19 -> Russia-Ukrain War -> Israel-Hamas issue
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Increased oil & gas prices supply chain disruptions
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Increased fiscal deficit
- Developmental & non-developmental expenditure -> capex, infrastructure creation -> subsidies, PDS etc.
- High logistic cost (14% of GDP) far above world average.
- Low exports (<3% of world) & Import dependency.
Potential consequences of high FD
- Crowding out of private sector
- lack of capex due to high FD.
- Development & asset creation compromised.
- Twin deficit problem - High FD & High Current Account Deficit
- increased government borrowing & degraded Sovereign credit ratings.
Measures to improve FD
- Supporting manufacturing sector and increasing exports (2 trillion target - foreign trade policy 2023)
- MSME led growth (45% exports, 30% GDP contribution)
- Diversification of supply chains & reduced import dependency (Atmanirbhar Bharat)
Close · a vision
Curbing fiscal deficit within limit is pre-condition of goal of 30 trillion economy by 2047 (Amrit Kaal).