What is the fiscal glide path and its significance within the Budget context?

The fiscal glide path represents the route taken by the Finance Ministry and the government to meet their self-set fiscal targets, crucial to prevent adverse effects of uncontrolled budget deficits on long-term economic growth.

Where does the suggested fiscal glide path guide the government, and who proposed this trajectory?

The NK Singh committee, formed under the Narendra Modi government, proposed a fiscal glide path aimed at gradually reducing the fiscal deficit. This path intended to lower the deficit to 3% of GDP by the end of FY20, further to 2.8% by FY21, and eventually to 2.5% by FY23.

What's the present scenario concerning the fiscal deficit, considering ongoing economic challenges?

The continued economic slowdown has impacted tax collections and government revenue sources, potentially leading to the likelihood of missing the current fiscal deficit target.

Can the government deviate from its fiscal target, and under what circumstances?

The NK Singh committee incorporated an escape clause, allowing a deviation of up to 0.5% of GDP in extraordinary situations. This provision permits the government to surpass its target if deemed necessary.

How does a fiscal deficit influence the overall economy?

Financing deficits through methods like printing money or excessive borrowing from central banks can augment the money supply. This surplus of money might cause inflationary pressures, affecting purchasing power, consumer spending, and business investments.

What is the link between fiscal deficits and inflationary pressure, particularly regarding government financing methods?

If the government finances deficits through avenues like issuing bonds or market borrowing, it amplifies the demand for funds, leading to increased interest rates. Elevated interest rates can induce inflationary pressures by raising borrowing costs for businesses and individuals.

Budget 2024: What is known as fiscal glide path?

Budget 2024: India struggles to meet the 4.5% GDP fiscal deficit goal for 2025-26, despite reducing from 9.5% due to COVID-19. The 5.9% target for 2023/24, down from 6.4% in 2022/23, faces scrutiny amid calls for fiscal flexibility. The fiscal gli...

By ET Online | Updated: Jun 26, 2024, 02.11 PM IST

India faces a challenging road to achieving its outlined fiscal deficit target of 4.5% of GDP for 2025-26, with analysts at Fitch Ratings expressing skepticism about the feasibility of this goal. Despite efforts to narrow the budget gap, which soared to 9.5% of GDP in 2020-21 due to COVID-19, the current deficit remains notably higher than the medium-term objective set for 2025-26.

The government has set a target of 5.9% of GDP for the fiscal deficit in 2023-24, down from the 6.4% deficit recorded in 2022-23 according to revised estimates. However, amidst calls for fiscal flexibility to address slowing economic growth, there are growing concerns about the government's ability to adhere to its fiscal glide path.

So, what exactly is this fiscal glide path that's garnering attention? ET explains:

What is the fiscal glide path and its significance within the Budget context?
The fiscal glide path represents the route taken by the Finance Ministry and the government to meet their self-set fiscal targets, crucial to prevent adverse effects of uncontrolled budget deficits on long-term economic growth.
Where does the suggested fiscal glide path guide the government, and who proposed this trajectory?
The NK Singh committee, formed under the Narendra Modi government, proposed a fiscal glide path aimed at gradually reducing the fiscal deficit. This path intended to lower the deficit to 3% of GDP by the end of FY20, further to 2.8% by FY21, and eventually to 2.5% by FY23.
What's the present scenario concerning the fiscal deficit, considering ongoing economic challenges?
The continued economic slowdown has impacted tax collections and government revenue sources, potentially leading to the likelihood of missing the current fiscal deficit target.
Can the government deviate from its fiscal target, and under what circumstances?
The NK Singh committee incorporated an escape clause, allowing a deviation of up to 0.5% of GDP in extraordinary situations. This provision permits the government to surpass its target if deemed necessary.
How does a fiscal deficit influence the overall economy?
Financing deficits through methods like printing money or excessive borrowing from central banks can augment the money supply. This surplus of money might cause inflationary pressures, affecting purchasing power, consumer spending, and business investments.
What is the link between fiscal deficits and inflationary pressure, particularly regarding government financing methods?
If the government finances deficits through avenues like issuing bonds or market borrowing, it amplifies the demand for funds, leading to increased interest rates. Elevated interest rates can induce inflationary pressures by raising borrowing costs for businesses and individuals.