{"id":33491,"date":"2024-12-10T18:54:16","date_gmt":"2024-12-10T13:24:16","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=33491"},"modified":"2025-01-06T17:10:10","modified_gmt":"2025-01-06T11:40:10","slug":"cii-urges-centre-to-stick-to-fiscal-deficit-target","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/10-12-2024\/cii-urges-centre-to-stick-to-fiscal-deficit-target","title":{"rendered":"CII Urges Centre to Stick to Fiscal Deficit Target"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Confederation of Indian Industry (CII) has suggested the government stick to the fiscal deficit target of <strong>4.9%<\/strong> of GDP for 2024-25 and <strong>4.5%<\/strong> for 2025-26.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is the fiscal deficit?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Fiscal Deficit is defined as excess of total budget expenditure (revenue and capital) over total budget receipts (revenue and capital) excluding borrowings during a fiscal year.<\/li>\n\n\n\n<li><strong>Fiscal Deficit<\/strong> = Total Expenditure \u2013 (Revenue Receipts + Non-Debt Creating Capital Receipts).<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>National Debt<\/strong><br>&#8211; The <a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/11-09-2024\/stick-to-fiscal-deficit-as-the-norm-for-fiscal-prudence\">fiscal deficit<\/a> is different from the national debt.\u00a0<br>&#8211; The national debt is the total amount of money that the government of a country owes its lenders at a particular point in time.\u00a0<br>&#8211; It is usually the amount of debt that a government has accumulated over many years of running fiscal deficits and borrowing to bridge the deficits.\u00a0<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Implications of fiscal deficit<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Inflationary Pressure:<\/strong> Persistently high fiscal deficits lead to inflation as governments resort to central bank-issued money to finance the deficit.<\/li>\n\n\n\n<li><strong>Crowding Out effect:<\/strong> When the government borrows a large portion of available funds from financial markets to finance its deficit, it crowds out private investment with reduced access to credit for businesses and individuals.&nbsp;<\/li>\n\n\n\n<li><strong>Reduced Fiscal Space: <\/strong>A high fiscal deficit limits the government&#8217;s ability to respond to economic shocks or crises.&nbsp;<\/li>\n\n\n\n<li><strong>Difficulty in borrowing:<\/strong> As a government\u2019s finances worsen, demand for the government\u2019s bonds begins to drop, forcing the government to offer to pay a higher interest rate to lenders.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Benefits of lower fiscal deficit<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Improved Credit Ratings:<\/strong> Consistent deficit reduction enhances international credit ratings, lowering borrowing costs in global markets.<\/li>\n\n\n\n<li><strong>Reduced Debt Servicing: <\/strong>Less spending on interest payments frees funds for development projects like infrastructure, education, and healthcare.<\/li>\n\n\n\n<li><strong>Improved Balance of Payments:<\/strong> Lower reliance on foreign borrowing stabilizes the exchange rate and current account.<\/li>\n\n\n\n<li><strong>Enhanced Investor Confidence:<\/strong> Signals fiscal discipline, attracting greater foreign and domestic investments.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>CII&#8217;s Recommendations for Fiscal Prudence<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>State-Level Fiscal Stability Reporting:<\/strong> CII suggests that States should adopt fiscal stability reporting systems to regularly evaluate their financial health.&nbsp;<\/li>\n\n\n\n<li><strong>State Borrowing and Guarantees: <\/strong>Following the 12th Finance Commission&#8217;s recommendations, States can borrow directly from markets.\n<ul class=\"wp-block-list\">\n<li>However, State Public Sector Enterprises (PSEs) borrowing on State guarantees can adversely affect the fiscal health of States. CII has stressed the importance of monitoring these guarantees to prevent fiscal slippages.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Credit Rating System for States:&nbsp; <\/strong>An independent and transparent credit rating system can incentivize States to maintain fiscal discipline.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>There is a need to follow the recommendations of the <strong>NK Singh committee, 2017 <\/strong>which proposed a draft Debt Management and Fiscal Responsibility Bill, 2017.<\/li>\n\n\n\n<li><strong>Incentivizing Financial Savings: <\/strong>Promoting <strong>higher household financial savings <\/strong>through tax incentives on financial products, improving returns on long-term savings schemes, and enhancing financial literacy.<\/li>\n\n\n\n<li><strong>Infrastructure Finance Reforms: <\/strong>Improving mechanisms for financing infrastructure projects by involving the private sector through public-private partnerships (PPP), infrastructure bonds, and development of finance institutions.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>NK Singh committee recommendation<\/strong><br>&#8211; <strong>Debt to GDP ratio: <\/strong>The Committee suggested using debt as the primary target for fiscal policy. A debt to GDP ratio of<strong> 60%<\/strong> should be targeted with a <strong>40%<\/strong> limit for the center and <strong>20% <\/strong>limit for the states by FY23.<br>&#8211; <strong>The fiscal deficit to GDP ratio<\/strong> of <strong>2.5%<\/strong> by FY23.<br>&#8211; <strong>Fiscal Council: <\/strong>The Committee proposed to create an autonomous Fiscal Council with a Chairperson and two members appointed by the center. The role of the Council would include:<br>1. Preparing multi-year fiscal forecasts,&nbsp;<br>2. Recommending changes to the fiscal strategy,&nbsp;<br>3. Improving quality of fiscal data,&nbsp;<br>4. Advising the government if conditions exist to deviate from the fiscal target.<br>&#8211; <strong>Deviations: <\/strong>The Committee suggested that grounds in which the government can deviate from the targets should be clearly specified, and the government should not be allowed to notify other circumstances.<br>&#8211; <strong>Debt trajectory for individual states: <\/strong>The Committee recommended that the Finance Commission should be asked to recommend the debt trajectory for individual states.&nbsp;<br>1. This should be based on their track record of fiscal prudence and health.&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.thehindu.com\/news\/national\/cii-urges-centre-to-stick-to-fiscal-deficit-target-to-avoid-growth-risks\/article68962631.ece\" target=\"_blank\" rel=\"noopener\"><strong>TH<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Confederation of Indian Industry (CII) has suggested the government stick to the fiscal deficit target of 4.9% of GDP for 2024-25 and 4.5% for 2025-26.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-33491","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/33491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=33491"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/33491\/revisions"}],"predecessor-version":[{"id":34909,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/33491\/revisions\/34909"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=33491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=33491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=33491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}