Fiscal consolidation refers to policies aimed at reducing government deficits and managing debt accumulation. It encompasses measures designed to enhance the fiscal health of the economy by increasing revenue and curtailing unnecessary expenditures.
The Finance Minister, Nirmala Sitharaman, has projected a fiscal deficit of 4.9% of GDP for the financial year 2024-25. The government's goal is to reduce the Centre's fiscal deficit to 4.5% of GDP by FY26.
Fiscal consolidation plays a crucial role in controlling the fiscal deficit, thereby ensuring debt sustainability. This process may enhance the sovereign rating of the country, leading to cheaper borrowing costs and attracting more investments.
Non-tax revenue (NTR) is projected to surpass previous estimates, enhancing revenue receipts. However, revenue expenditures are expected to rise due to increased spending on infrastructure and developmental activities.
The fiscal deficit for FY24 is projected to be 5.6% of GDP, a decrease from an initial estimate of 5.9%. It is expected to further decline to 4.9% in FY25 and 4.5% in FY26.
The government aims to lower the debt-to-GDP ratio by controlling the fiscal deficit, which will help maintain a sustainable level of debt in relation to the economy's size.
Some critics argue that there is an excessive focus on reducing the fiscal deficit, potentially limiting necessary spending for economic growth. Others feel that aiming to reduce the deficit to 3% of GDP may be overly ambitious and could adversely affect public welfare programs.
The fiscal deficits of states are also targeted to be reduced to 3.5-4% of their respective gross state domestic product (GSDP). Financial assistance and increased tax devolution to states are integral to helping them manage their finances effectively.
The government is committed to reducing the fiscal deficit while ensuring fiscal responsibility. Continuous monitoring and adjustments in fiscal policies are anticipated to align with economic growth and development goals.
Q1. What is the main goal of fiscal consolidation?
Answer: The primary goal of fiscal consolidation is to reduce government deficits and manage debt accumulation, thereby ensuring the fiscal health of the economy.
Q2. How does fiscal consolidation affect economic growth?
Answer: Fiscal consolidation can enhance economic growth by ensuring debt sustainability, which may lead to improved sovereign ratings and lower borrowing costs.
Q3. What measures have been implemented for fiscal consolidation in India?
Answer: Key measures include increased employment spending, a new personal income tax regime, and transfers from the RBI to boost revenues.
Q4. What are the projected fiscal deficit figures for India?
Answer: The fiscal deficit is projected at 5.6% for FY24, decreasing to 4.9% in FY25 and 4.5% in FY26.
Q5. How does fiscal consolidation impact state governments?
Answer: States are also encouraged to reduce their fiscal deficits to 3.5-4% of GSDP, aided by financial assistance and tax devolution.
Question 1: What is the projected fiscal deficit for India in FY25?
A) 5.9% of GDP
B) 4.9% of GDP
C) 4.5% of GDP
D) 3.5% of GDP
Correct Answer: B
Question 2: What is one measure taken to achieve fiscal consolidation in India?
A) Increased import tariffs
B) Introduction of a new personal income tax regime
C) Decreased spending on infrastructure
D) Reduction in tax collection efforts
Correct Answer: B
Question 3: What is the target debt-to-GDP ratio for the Indian government?
A) 50%
B) 60%
C) 70%
D) None of the above
Correct Answer: D
Question 4: Which state is mentioned as receiving financial packages for employment generation?
A) Gujarat
B) Bihar
C) Maharashtra
D) Punjab
Correct Answer: B
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