Shedding more light on the debt dilemma
Source:The Hindu
For Prelims: Fiscal Deficit, Primary Deficit, Revenue Deficit, Statutory liquidity ratio (SLR), Cash reserve ratio (CRR), The Finance Commission, GDP, Nominal GDP, Goods and Services Tax (GST), Fiscal Responsibility and Budget Management (FRBM).
For Mains: Debt Management In India.
Highlights Of the Article:
1. India's fiscal deficit and public debt have been a major concern for a long time, even before the COVID-19 pandemic.
2. The pandemic further worsened the situation, leading to a significant increase in fiscal deficit to 13.3% and aggregate public debt to 89.6% of GDP in 2020-21.
3. High debt levels have severe consequences, including large interest payments that crowd out essential expenditures like education, healthcare, and infrastructure.
4. With upcoming elections in 2023 and the general election in 2024, there is a risk that the debt situation could worsen due to the electoral budget cycle.
5. Rethinking the role of the state is necessary, including disinvestment to free up resources and reduce the burden on the government.
6. Enforcing Fiscal Responsibility and Budget Management (FRBM) rules can help maintain financial discipline and control over borrowing, contributing to debt management.
7. Promoting growth in Goods and Services Tax (GST) revenue is essential for increasing tax revenues and tackling the debt burden.
Context:
The article is about the high debt levels in India and the need for the government to take steps to reduce the debt burden.
UPSC EXAM NOTES ANALYSIS:
1.Fiscal Deficit and Public Debt Metrics:
India's fiscal deficit and public debt have been a major concern for a long time, even before the COVID-19 pandemic.
Debt levels in India were already among the highest in the developing world and emerging market economies before the pandemic struck.
The pandemic further worsened the situation, leading to a significant increase in fiscal deficit to 13.3% and aggregate public debt to 89.6% of GDP in 2020-21.
The economy's recovery after the pandemic has resulted in a decline in the fiscal deficit to 8.9% and public debt to 85.7% of GDP, but projections suggest the debt levels may not return to pre-pandemic trajectories in the medium term.
2.Implications of High Debt Levels:
High debt levels have severe consequences, including large interest payments that crowd out essential expenditures like education, healthcare, and infrastructure.
Interest payments on debt constitute over 5% of GDP and 25% of revenue receipts, more than what the government spends on education and healthcare combined.
The high debt burden makes it challenging for the government to implement counter-cyclical fiscal policies and respond effectively to economic shocks.
The debt market in India is largely captive, with mainly commercial banks and insurance companies participating, leading to resource constraints for lending to the manufacturing sector.
3.The Urgent Need for Policy Interventions:
With upcoming elections in 2023 and the general election in 2024, there is a risk that the debt situation could worsen due to the electoral budget cycle.
Rethinking the role of the state is necessary, including disinvestment to free up resources and reduce the burden on the government.
Enforcing Fiscal Responsibility and Budget Management (FRBM) rules can help maintain financial discipline and control over borrowing, contributing to debt management.
Promoting growth in Goods and Services Tax (GST) revenue is essential for increasing tax revenues and tackling the debt burden.
4.Conclusion:
India's fiscal deficit and public debt dilemma require immediate attention and targeted action. The impact of high debt levels on the economy, along with upcoming elections, necessitates prudent fiscal policy and effective debt management. By reevaluating the role of the state, enforcing budget management rules, and promoting GST revenue growth, India can take steps towards managing its debt burden effectively and achieving sustainable economic growth in the long run.
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Practice Questions:
1. What are the key challenges to reforming the fiscal deficit and public debt in India? 2. What are the key international best practices for managing fiscal deficits and public debt? |
