A topper · GS3 · 54 pages

Shreya: GS3 answer copy

20 answers by Shreya, as written in the test. Each question opens a page with how other toppers answered it.

The questions

The answers

Question 1 · 10 marks · 195 words written

The Union Budget 2025-26 outlines a shift towards the 'debt-to-GDP ratio' as the fiscal anchor starting from FY 2026-27. Discuss the rationale behind this shift.

Opening · a restatement

The recent shift from fiscal deficit target of 5% as the fiscal anchor towards Debt-to-GDP ratio highlights a reformation shift in balancing the budgetary deficit.

Body · points

Rationale behind this shift:

  1. To align with the 'international standards' to debt measurements like the IMF & World Bank.

  2. This shift helps to overcome the drawbacks of 'escape clause' of the fiscal deficit target under FRBM act.

  3. Government spending during the 'black swan' event can be justified if debt-to-GDP is measured instead of maintaining an fiscal deficit anchor.

  4. Gives 'fiscal space' to government without breaching the targets. Thus helps to improve the capex ratio.

  5. Debt to GDP ratio will help in measuring the changes between the two and 'fiscal health' of the economy in better parameters.

  6. 'Holistic comparison' with other countries can help to analyse our stand in the global markets.

→ However, few concerns raised

→ Breaching the FRBM limit of fiscal deficit can cause 'inflationary pressure' on the economy

→ Increase in the 'off-budget' borrowings can result in 'crowding out effect' to the private sector.

Close · a summary

Thus, though the shift is reformative but must be balanced to ensure healthy fiscal targets are met.