Question 1 · 10 marks · 189 words written
Opening · a figure
Fiscal deficit in India is nearly 5.8% of GDP in FY23-24 and is much beyond the 3% target as per FRBM.
Body · points and prose
- Factors
- 1) low tax to GDP ratio
- Bar chart showing Tax/GDP on y-axis, countries on x-axis:
- India: 17%
- China: 24%
- OECD: 35%
- 2) Populist measures
- farm loan waivers, non-asset creating subsidies.
- 3) Inefficient taxation machinery
- leakages
- lots of exemptions.
- 4) Government thrust on capex through borrowing.
- Eg: 11.1 trillion capex for FY24-25.
- 5) off budget borrowings.
- 6) inefficient PSEs
Potential consequences
- 1) High interest burden
- largest component of expenditure in budget
- 2) Burden on future generations
- 3) Out-migration due to tax burden on narrow middle class
- 4) High interest rates → Crowding out effect
Suggested measures -
- Simplify tax structure
- less slabs, minimal exemptions.
- focus on disinvestment and asset monetisation targets.
- Widen tax base → Rich farmers.
- Political consensus for NO FREEBIES.
- Build strong financial sector to provide cheaper credit
- curb off budget borrowings through a law.
Fiscal stability is the key pillar of sustainable growth at high pace.
Food corporation of India procures, stores and delivers the food grains and is a vital link in India's food security system, but is marred with inefficiencies.
Role of FCI
- Buy grains from markets (APMC mandis) (By FCI) -> Store in godowns (self as well as rented) (By FCI)
- Store in godowns -> Transfer to States based on quota allocated (By FCI)
- Transfer to States -> States then sell the grains to people as per NFSA, 2013 (By states)
- Issues with FCI
- 1) Transfer related inefficiencies
- Leakages while transporting
- No proper accounting
- 2) Storage losses
- Nearly 25 MMT per annum
- Reduce shelf life
- 3) Corruption
- Selling outside
- Record tampering
- 4) Low technological usage
- Data management issues
- 5) Lack of standard warehousing practices
Desirable reforms in FCI -
- Use of GPS tracking systems to ensure no divergence while transit.
- Work in progress.
- Focus on grading and sorting
- Quality should be focussed
- Standard practises like Warehouse Management Systems (WMS) should be implemented.
- Blockchain integration
- Immutable sale and purchase data.
- Storage efficiency enhancement
- Cold chains
- Proper disinfectant usage etc.
Close · a summary
Proper functioning of FCI will help us reduce our food subsidy bill substantially.