{"id":36869,"date":"2025-02-06T18:54:40","date_gmt":"2025-02-06T13:24:40","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=36869"},"modified":"2025-08-08T13:03:25","modified_gmt":"2025-08-08T07:33:25","slug":"debt-gdp-ratio","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/06-02-2025\/debt-gdp-ratio","title":{"rendered":"Shift to Debt-GDP Ratio from Fiscal Deficit as Fiscal Anchor"},"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 central government has announced a shift towards the \u201c<strong>debt-GDP ratio<\/strong>\u201d as the fiscal anchor, beginning from the <strong>2026-27<\/strong> financial year.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The government has detailed three levels of fiscal consolidation based on<strong> nominal GDP growth<\/strong> assumptions:\n<ul class=\"wp-block-list\">\n<li><strong>Mild:<\/strong> 10% growth rate<\/li>\n\n\n\n<li><strong>Moderate:<\/strong> 10.5% growth rate<\/li>\n\n\n\n<li><strong>High:<\/strong> 11% growth rate<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Debt-GDP ratio in India:<\/strong> For the central government, the ratio is estimated to be <strong>57.1% in 2024-25<\/strong> and <strong>56.1% in 2025-26.<\/strong>\n<ul class=\"wp-block-list\">\n<li>The government aims to reduce the debt-GDP ratio to<strong> 50\u00b11<\/strong> per cent by <strong>2031.<\/strong>&nbsp;<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img data-dominant-color=\"f5f4f4\" data-has-transparency=\"false\" style=\"--dominant-color: #f5f4f4;\" loading=\"lazy\" decoding=\"async\" width=\"512\" height=\"239\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/02\/Shift-to-Debt-GDP-Ratio-from-Fiscal-Deficit-as-Fiscal-Anchor.png\" alt=\"debt-gdp ratio\" class=\"not-transparent wp-image-36877\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/02\/Shift-to-Debt-GDP-Ratio-from-Fiscal-Deficit-as-Fiscal-Anchor.png 512w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/02\/Shift-to-Debt-GDP-Ratio-from-Fiscal-Deficit-as-Fiscal-Anchor-300x140.png 300w\" sizes=\"auto, (max-width: 512px) 100vw, 512px\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>Rationale Behind the Shift<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Enhanced Transparency and Flexibility:<\/strong> Unlike rigid annual fiscal deficit targets, the<strong> debt-GDP ratio <\/strong>provides a more comprehensive and long-term perspective of fiscal health.<\/li>\n\n\n\n<li><strong>Alignment with Global Best Practices:<\/strong> Many advanced economies prioritize debt sustainability over annual deficit targets, ensuring that fiscal policies remain adaptable to changing economic conditions.<\/li>\n\n\n\n<li><strong>Better Fiscal Management:<\/strong> This approach allows governments to rebuild financial buffers and allocate resources efficiently for growth-enhancing expenditures.<\/li>\n\n\n\n<li><strong>Disclosure of Off-Budget Borrowings:<\/strong> The new approach aims to bring greater clarity and transparency in government borrowings, addressing past concerns about fiscal opacity.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Challenges&nbsp;<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>FRBM Act Compliance:<\/strong> The new framework suggests a significant delay in achieving the Fiscal Responsibility and Budget Management (FRBM) Act target of <strong>40% debt-GDP ratio.<\/strong><\/li>\n\n\n\n<li><strong>Implementation Challenges:<\/strong> Maintaining fiscal discipline while ensuring adequate public expenditure for economic growth remains a challenge.<\/li>\n\n\n\n<li><strong>State Debt Burden: <\/strong>The total debt burden, including states, remains a concern, necessitating coordinated fiscal consolidation.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Concluding remarks<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The shift to the<strong> debt-GDP<\/strong> ratio as a fiscal anchor marks a significant change in India\u2019s fiscal policy framework.\u00a0<\/li>\n\n\n\n<li>While it offers greater flexibility and long-term sustainability, effective implementation and adherence to fiscal discipline will be crucial in achieving the targeted fiscal consolidation.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><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;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/business\/budget\/budget-govt-roadmap-shift-debt-gdp-ratio-fiscal-anchor-fy-2026-27-9811859\/\" rel=\"nofollow noopener\" target=\"_blank\"><strong>IE<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The central government has announced a shift towards the \u201cdebt-GDP ratio\u201d as the fiscal anchor, beginning from the 2026-27 financial year.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-36869","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\/36869","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\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=36869"}],"version-history":[{"count":6,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36869\/revisions"}],"predecessor-version":[{"id":50826,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/36869\/revisions\/50826"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=36869"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=36869"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=36869"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}