Question Q.1GS3GS3
The Union Budget 2025-26 outlines a shift towards the 'debt-to-GDP ratio' as the fiscal anchor governing from 2026-27. Discuss the rationale behind this shift.
Introduction
Virtuous cycle of fiscal spending
5 words
Main Body
Debt to GDP ratio shifts to the amount of public debt (Internal + external) compounded through GDP levels. FRBM (Amend Act) (2015) pegged 3% for central government and 2.5% for state. Rationale behind debt to GDP ratio shift as fiscal anchor
Rigid fiscal deficit targetFRBM Act had pegged it at 3% Need for higher spending by governmentNeed for generation of 75 million jobs by 2050 annually [World Bank]To support MSME and generate demand in the market
More fundsMore productionMore demandMore spendingMore deductionMore funds Fiscal deficit targets never adhered to unless only one year. Debt to GDP gives more flexibility for governments and borrowing. However challenges remain:vague assumption regarding normal GDP (1st optimistic)lower borrowingCrowding private sector (high growth)uncertaintyFiscal indisciplinefreebies cultureLack of adequate regulation on spending Therefore, the Golden Rule of fiscal policy of high capex and fiscal consolidation must be adhered to in longer run.
174 words1 paragraphs
Conclusion
Therefore, the Golden Rule of fiscal policy of high capex and fiscal consolidation must be adhered to in longer run.
20 words
Topper
Ayush Pathak
AIR 2152025
Subject & Paper
GS3GS3
Topic
Economic Development
Government Budgeting
Fiscal Deficit and FRBM
Writing Stats
199
Total words
1
Paragraphs
analytical
Tone