Topic– Part of static series under the heading – “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment”
6) Why do economies strive for fiscal consolidation and examine whether fiscal exapnsion during slowdown is advantageous?(250 words)
Key demand of the question
The question expects us to bring out the advantages of fiscal consolidation. Thereafter, we need to discuss the debate between fiscal consolidation and expansion and examine which of the two during a phase of slowdown would be more advantageous.
Examine – When you are asked to examine, you have to probe deeper into the topic, get into details, and find out the causes or implications if any.
Structure of the answer
Introduction – Explain what do you understand by fiscal consolidation and expansion.
Body – Discuss the advantages that are accrued as a result of fiscal consolidation such as peps up market sentiment, helps keep inflation in check etc. Discuss that keeping in view these advantages FRBM act was brought it. Thereafter, move to the next part of the question and examine the phases such as post 2008 crisis and currently when expansion has taken place and the impact of such fiscal expansion.
Conclusion – Give your view on the usage of fiscal expansion as a tool during recession and comment on the recent breaches of FRBM Act.