FISCAL CONSOLIDATION IN

INDIA, DO WE NEED A
BALANCED BUDGET
AMENDMENT?

PGP35215- KARTEEK PULAVARTHI

PGP35231- SAYANTAN GHOSH
PGP35233- SHAMAYITA SAHA
 AGENDA

Introduction
The Indian Context
Probable Remedies
 If we have a situation where government
spends more than it earns it is called fiscal
deficit

 Fiscal deficit= government spending-

government revenue

 Fiscal deficit is measured as a percentage of

GDP

 Fiscal consolidation is a process where

government’s fiscal health is getting
improved and is indicated by reduced fiscal
deficit.
 Generally fiscal deficit occurs either due to
a revenue deficit or a major hike in capital
expenditure
CAUSES OF FISCAL DEFICIT in india
 Payment of interest
 Poor performance of public sector
 Excessive government borrowings
 Tax evasion
 Increase in subsidies

Excess fiscal deficit produces some adverse effects

For the government it causes interest payment
burden for the economy it produces inflationary
effect, and rising interest rate in the economy.

Fiscal deficit for India is 3.3%

Germany is such a country where surplus is 1.7% of
GDP
Fiscal deficit in India
PROBLEMS IN INDIAN CONTEXT
 Fiscal deficit target for 19-20 was 3.3 % of GDP,
but with current corporate tax cuts this seems
a distant possibility. Delivering on fiscal
consolidation and raising incomes will be
extremely challenging, particularly since growth
is likely to remain weak over the coming period
as rate of growth of GDP has fallen to near 5 %
in the last quarter.

 Given our sluggish growth, lower lending by

NBFCs and election promises to support rural
voters, there is every possible chance of further
fiscal loosening.
 RECENT MOVES TAKEN BY
GOVERNMENT
 The government has almost met the fiscal deficit target for
FY19, but election-year compulsions mean there is no
improvement seen in FY20, which makes the much-delayed
goal of achieving a 3% of GDP fiscal deficit target difficult.

 Government’s commitment to substantially boost

investment in agriculture and the social sector,
provide for essential items of expenditure such as defence
expenditure, pension and salaries, internal security and
other welfare programmes.

 Plans to support growth is mainly directed by huge

estimated infrastructure spending of dollar 1.4 trillion.
In the next 5 years and further efforts to encourage
foreign direct investments across multiple sectors.
POSSIBLE STEPS AND
SOLUTIONS
 Improved tax revenue realization: For this, increasing
efficiency of tax administration by reducing tax avoidance,
eliminating tax evasion, enhancing tax compliance etc. are
to be made.
 Enhancing tax GDP ratio: by widening the tax base and
minimizing tax concessions and exemptions also improves
tax revenues
 Better targeting of government subsidies and extending
Direct Benefit Transfer scheme for more subsidies
 Lending money to MSME
 Solve the crisis of non-lending from several
banks
 Reduce obligations from loss making
organisations like Air India, BSNL
 Even as our noble laureate Dr Abhijit Banerjee
has also mentioned that money should reach in
the hands of farmers, thus we need to increase
minimum support price of various
commodities and perhaps stop worrying about
increasing inflation for the time being
 PM Kisan
 Government should not limit itself to lending
money in PSB s , but rather take decisive steps
like mergers of various banks, PCA