What do you understand by Fiscal Consolidation? Elucidate the bottlenecks and steps taken by the government in recent years to achieve the same.
Fiscal consolidation implies reduction in debt accumulation and fiscal deficit. Governments undertake different policies to achieve fiscal consolidation. Improved revenue collection and prospective growth boosting expenditure are the components to achieve fiscal consolidation. The Fiscal Responsibility and Budget Management (FRBM) Act gives the government targets to maintain the fiscal discipline. N.K.Singh committee in 2016 gave fiscal deficit targets of 3.2% for the year 2017-18.
The November updates show that, financial year 2017 may see a deviation from the anticipated fiscal deficit targets. It has already reached 112% of the fixed target. The government also announced a Rs. 50,000 crore additional borrowing. This additional borrowing was feared to cause fiscal slippage.
On the contrary, government states that the fiscal consolidation need not be abandoned completely due to the increasing fiscal deficit. The increase in fiscal deficit this year was mainly because of the decreased revenue collections on the account of GST roll out. The government is expecting a sharp increase in the revenue receipts by the end of the year. therefore, it is not squeezing on the expenditure.
Recent measures taken by the government for fiscal consolidation include,
Amendment of FRBM Act. The FRBM Act, 2003 has been changed according to the current scenario after the recession and rolled out with new targets in the year 2015.
Expenditure rationalisation. Implementation of Direct Benefit Transfers had plugged the leakages in the system.
Demonetisation led to the disclosure of income which in a way helped to increase the tax base and avoiding tax evasion. As a result, revenue receipts will gradually increase.
Increasing investment in infrastructure has aligned expenditure towards boosting growth. The GDP of the country has increased to 6.3% from a record low 5.7% in the last quarter.
The finance commission provisions to increase the states fiscal prudence came up with new devolution of taxes.
Fiscal discipline is a must for any nation. The better the state of fiscal consolidation, the better the growth and economy of the nation.
What do you understand by Fiscal Consolidation? Elucidate the bottlenecks and steps taken by the government in recent years to achieve the same. [ET]
Published: January 2, 2018 | Modified:June 27, 2019