Topic: Government Budgeting.
5. How does fiscal deficit impact the Indian economy? Suggest measures to overcome the fiscal deficit created by the impact of the pandemic. (250 words)
Difficulty level: Easy.
Reference: Indian Express
Why the question: The last budget had presented a roadmap for fiscal consolidation, projecting to bring down the fiscal deficit from 9.5 per cent of GDP in 2020-21 to 6.8 per cent in 2021-22, and thereafter, to below 4.5 per cent by 2025-26.
Key Demand of the question: To write about the impact of fiscal deficit and the steps to overcome it.
Structure of the answer:
Introduction:
Begin by defining fiscal deficit.
Body:
In the first part, give the context of pandemic and increased fiscal deficit due to it.
Next, write about the impact of fiscal deficit – price stability and inflation, push up overall demand in the economy, raising the cost of inputs, ‘crowding out’ effect etc.
Next, suggest policy measures to overcome the above.
Conclusion:
Conclude with a way forward.
