April 1, 2023

General Studies Paper 3


  • The supply of critical imports were disrupted by the Russia Ukraine war and the prices of such imports increased sharply, derailing many economies.

Fiscal policy:

  • The fiscal policy is concerned with the raising of government revenue and Government Budget increasing expenditure.
  • To generate revenue and to increase expenditures, the government finance or policy called Budgeting policy or fiscal policy

The major fiscal measures are:

  • Public Expenditure
  • Taxation
  • Public Borrowing

India’s economic condition:

  • India’s performance was relatively better than many other countries, the return to normalcy has been delayed.
  • India’s GDP at the end of the present fiscal year will only be 57(eight point five seven)% higher than its level in 2019-20, giving an average of 2.86% for three years.

Growth performance:

  • Real Gross Value Added (GVA)(2002-23):It is estimated to grow by 7(six point seven)%.
    • sectoral decomposition indicates that every output sector has turned positive as compared to the corresponding magnitudes in the pre-COVID-19 year of 2019-20.
  • Nominal GDP(2023-24): It may be close to ₹300 lakh crore.
    • Real growth in the second half of 2022-23is only 5(five point five)% as per the advance estimates.
  • The policy response to the COVID-19 shock: There was a sharp increase in the Centre’s fiscal deficit to 2(nine point two)%of the GDP.
    • More than three times the original Fiscal Responsibility and Budget Management Act (FRBM) norm of 3%.
  • Fiscal deficit: In the two succeeding years, the fiscal deficit could be reduced to 7(six point seven)% and 4(six point four)%, respectively.

Challenges to India’s growth prospects:

  • The Organization for Economic Co-operation and Development(OECD): It has projected a growth rate of 2(two point two)%for the global economy in 2023
    • India: 5.7(five point seven)% in 2023-24.
  • The International Monetary Fund:
    • Global growth: 2.7(two point seven)%
    • India’s growth: 1(six point one)%.
  • India may be able to achieve a growth in the range of 6-6.5(six point five)% in 2023-24, provided significant policy support is given to growth.

India’s Fiscal prospects:

  • Growth in the Centre’s Gross Tax Revenues (GTR) in 2023-24would be less than that in 2022-23.
    • Because of an expected fall in both real GDP growth and deflator-based inflation.
  • Together with non-tax revenues and non-debt capital receipts: total resources available to the Central government would be nearly ₹28.3(twenty eight point three)lakh crore.

Way Forward

  • With 2023-24 being the first genuine post COVID-19 normal year: It would be best to spell out a convincing path towards the prescribed fiscal deficit ratio of 3%.
    • This calls for a total adjustment of 3.4(three point four) percentage points of GDP.
  • The need for correction in the government’s fiscal deficit because of the relative profile of savings and investment as a proportion of GDP.
  • Financial savings along with net inflow of foreign capital provide the extent of surplus available for the potential net deficit sectors in the economy.
  • Target a reduction of 0.7(zero point seven)% point in fiscal deficit in 2023-24 compared to 2022-23
    • The resultant fiscal deficit of 7(five point seven)% of GDP would imply availability of investible resources of 1(one point one)% of GDP for both the private corporate sector and the non-government public sector.
  • Finance by household sector financial savings of about 8% of GDP and net inflow of foreign capital of 3(two point three)% of the GDP.
    • It will not put any additional pressure on interest rates
    • It would be ideal for sustaining a robust medium-term growth with price stability.
  • Bringing down fiscal deficit and charting out a glide path are essential for maintaining price stability.
    • The pressure on the Reserve Bank of India (RBI) to expand reserve money will come down.
  • A careful calibration would be required for limiting revenue expenditure growth in order to retain space for capital expenditure to grow adequately with a view to supporting growth.
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