{"id":226415,"date":"2023-02-13T20:24:54","date_gmt":"2023-02-13T14:54:54","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=226415"},"modified":"2023-02-20T13:14:15","modified_gmt":"2023-02-20T07:44:15","slug":"indias-fiscal-dilemma","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/indias-fiscal-dilemma\/","title":{"rendered":"India\u2019s fiscal dilemma"},"content":{"rendered":"\n

Source<\/strong>– The post is based on the article \u201cIndia\u2019s fiscal dilemma\u201d <\/strong>published in The Indian Express<\/strong> on 13th February 2023<\/strong>.<\/p>\n

Syllabus: <\/strong>GS3- Government budgeting<\/p>\n

Relevance<\/strong>– Fiscal situation of economy<\/p>\n

News<\/strong>– The recently announced budget provides a good opportunity to study the fiscal situation of the country.<\/p>\n

What is the good news for the fiscal scenario of the country? <\/strong><\/h2>\n

The fiscal situation <\/strong>has proved resilient to the successive shocks.<\/p>\n

Tax collections <\/strong>as a percent of GDP are actually marginally higher than they were in 2018-19. On the spending side, the composition has improved. Capital expenditure<\/strong> has increased from 1.5% of GDP to a budgeted 3.5% of GDP.<\/p>\n

Sizable amount of off-budget expenditures<\/strong> were brought back onto the budget.<\/p>\n

The fiscal deficit is now on a downward trajectory<\/strong>. It is budgeted to fall to about 6% of GDP next year from a Covid peak of more than 9%.<\/p>\n

What are the mixed developments related to the fiscal situation?<\/strong><\/h2>\n

Personal income taxes<\/strong> have shown an encouraging rise. But, this is accompanied by increases in exemption limits. It means that taxation is now resting on a narrower base of taxpayers<\/strong>.<\/p>\n

The GST\u2019s promise has not yet been realised. The collection rati<\/strong>o has remained essentially the same as it was five years ago. It is because efficiency gains<\/strong> have been offset by repeated reductions in rates.<\/p>\n

Furthermore, corporate tax revenues <\/strong>have declined significantly, because tax rates have been reduced.<\/p>\n

What are bad signals for the fiscal situation?<\/strong><\/h2>\n

There has been a notable increase in expenditures<\/strong> over the past five years. The true increase in expenditure remains substantial, exceeding 1.5%of GDP.<\/p>\n

The structural fiscal deficit<\/strong> is budgeted to 6% of GDP next fiscal due to high expenditure.<\/p>\n

The large deficits since 2018-19 have necessitated large amounts of borrowing<\/strong>. It has led to an increase in interest obligations<\/strong>. They now absorb nearly half of the centre\u2019s tax revenues.<\/p>\n

The second issue is centralisation<\/strong>. The states will receive just 31% of gross tax revenues<\/strong> next fiscal, compared with 37% in 2018-19. This reflects the centre\u2019s increasing use of cesses<\/strong>, which are not shared with the states.<\/p>\n

A subtler form of centralisation<\/strong> is taking place on the expenditure side<\/strong>. Non-interest, non-subsidy current expenditure<\/strong> is being compressed by 1% of GDP in 2022-23 and\u00a0 0.5 % of GDP next year.<\/p>\n

The centre is scaling back its transfers to states for various centrally sponsored schemes<\/strong>. Some of the reduction can be justified because it is aimed at forcing the states to improve their efficiency in their spending and managing their funds.<\/p>\n

What are the limitations of centralisation for fiscal consolidation?<\/strong><\/h2>\n

In an optimistic scenario, Centralisation can lead to improvement in state government efficiency<\/strong>. But,the centre will need to find other ways to reduce the deficit to its target of 4.5% of GDP.<\/p>\n

Centralisation may not succeed in improving efficiency<\/strong>. In that case, states would either need to reduce the services provided to their people or increase their borrowing. The overall fiscal position<\/strong> might not improve at all.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source– The post is based on the article \u201cIndia\u2019s fiscal dilemma\u201d published in The Indian Express on 13th February 2023. Syllabus: GS3- Government budgeting Relevance– Fiscal situation of economy News– The recently announced budget provides a good opportunity to study the fiscal situation of the country. What is the good news for the fiscal scenario… Continue reading India\u2019s fiscal dilemma<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-226415","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/226415","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=226415"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/226415\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=226415"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=226415"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=226415"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}