Topic: Government Budgeting.
5. How might India avoid the twin deficit issue in the face of growing commodity prices and the weight of subsidy payments? (250 words)
Difficulty level: Tough
Reference: Insights on India
Why the question:
The finance ministry on Monday cautioned the re-emergence of the twin deficit problem in the economy, with higher commodity prices and rising subsidy burden leading to an increase in both fiscal deficit and current account deficit. It’s also the first time the government has explicitly talked about the possibility of fiscal slippage in the current fiscal year.
Key Demand of the question:
To write about twin deficit, concerns associated with it and measures needed to avoid the problem.
Structure of the answer:
Begin by defining twin deficit.
First, write about the concerns associated with it and how it impacts various macro-economic parameters.
Next, write about the ways in which it could be avoided – write about various Fiscal, Monetary and other policy measures that are needed to avoid the twin deficit problem.
Conclude with a way forward.