भारत में उच्च राजकोषीय घाटे से जुड़े कारों पर प्रकाश डालते हुए, ऐसे घाटे के संभावित परिणामों पर चर्चा करिए तथा राजकोषीय सुदृढ़ता (Fiscal consolidation) सुनिश्चित करने के उपाय सुझाइए।(10 अंक, 150 शब्द) Highlighting the factors contributing to high fiscal deficit in India, discuss the potential consequences of such deficit and suggest measures to ensure fiscal consolidation. (10 marks, 150 words)

Fiscal deficit refers to the net borrowings taken by the government to finance its expenditure - revenue and capital. Currently it is around 5.8%, and the government aims to reduce it to 5.3%. (Budget FY25)

Factors contributing to the high fiscal deficit:

i) Low tax revenue collection by the government – direct and indirect taxes.

ii) Low tax base – activities such as agriculture not included.

iii) High revenue expenditure of the government.

(a) High pensions and salaries for defence.

iv) High capital expenditure – increased from 14% to 20% of total expenditure.

v) Subsidies – food, fuel and fertilizers along with expenditure in welfare schemes (eg PM Awas Yojana).

Borrowing by the government to finance the deficit

– Crowding out of private sector (Economic survey).

High inflation due to monetizing the deficit.

High revenue expenditure – Intergenerational equity issues.

Burden to reduce expenditure on social welfare.

Measures to be taken:

– Reduction in revenue expenditure (eg Ayushth scheme).

Increased capital expenditure – Multiplier effect → Increase tax income.

Prevent leakages and corruption in subsidies and schemes. (eg MNREGA social audit).

Tech usage to reserve tax collection.

Government measures such as faceless-tax appeals, GST, New Pension scheme are aimed at fiscal consolidation.

— Aditya Agarwal