Discuss the role of fiscal reforms in achieving sustainable economic growth in India

Q.8 Discuss the role of fiscal reforms in achieving sustainable economic growth in India

Ans: Fiscal reforms are critical for achieving sustainable economic growth in India. They aim to enhance revenue generation, rationalize expenditure, and ensure fiscal discipline, thereby creating a stable environment for long-term development.

1. Enhancing Revenue Mobilization: Fiscal reforms like the Goods and Services Tax (GST) have streamlined tax collection, reducing evasion and increasing revenue. Example: GST has increased the tax base from 6.4 million to over 13 million taxpayers since its implementation in 2017.
2. Rationalizing Subsidies: Reforms such as the Direct Benefit Transfer (DBT) have made subsidies more targeted and efficient. Example: DBT in LPG subsidies (PAHAL scheme) saved the government ₹50,000 crore by eliminating ghost beneficiaries.
3. Promoting Fiscal Discipline: The Fiscal Responsibility and Budget Management (FRBM) Act mandates limits on fiscal deficits, ensuring macroeconomic stability. Example: The FRBM Act helped reduce India’s fiscal deficit from 6.5% of GDP in 2001 to 3.3% in 2019-20.
4. Encouraging Public-Private Partnerships (PPPs): Fiscal reforms have promoted PPPs in infrastructure development, leveraging private sector efficiency. Example: The Delhi Metro and Mumbai-Pune Expressway are successful PPP projects that have boosted connectivity and economic activity.
5. Boosting Capital Expenditure: Increased allocation for capital expenditure in budgets supports infrastructure development, which is crucial for growth. Example: The 2023-24 Budget allocated ₹10 lakh crore for infrastructure, focusing on roads, railways, and urban development.
6. Addressing Inequality: Fiscal reforms like progressive taxation and social sector spending aim to reduce income inequality. Example: The National Health Mission (NHM) and MGNREGA have improved healthcare and rural employment, respectively.
7. Stimulating Investment: Corporate tax cuts and incentives for foreign direct investment (FDI) have attracted global investors. Example: The 2019 corporate tax cut reduced rates from 30% to 22%, boosting investor confidence and FDI inflows.
8. Ensuring Sustainable Debt Management: Reforms in debt management have reduced borrowing costs and ensured long-term fiscal sustainability. Example: The government’s switch to long-term bonds has lowered interest rates and extended debt maturity periods.

Fiscal reforms play a pivotal role in achieving sustainable economic growth in India by enhancing revenue, rationalizing expenditure, and promoting fiscal discipline. However, challenges like implementation gaps and regional disparities need to be addressed to ensure inclusive and equitable growth.

Keywords: GST, FRBM Act , DBT , PPP, Capital Expenditure , Fiscal Discipline, Fiscal Policy Sustainable Growth, Tax Reforms , Public Expenditure, Fiscal Deficit , Economic Stability

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Extra Info :  Recommendations of the Task Force on Direct Taxes The Committee has argued that a tax system should balance the requirements of: a) equity, b) ease of collection, and c) fostering the efficiency in resource allocation. The Committee, in the interests of efficient tax administration, has opined that a fairer tax structure should comprise of: a) low rates of taxation, b) few nominal rates, c) a broad base, d) minimal tax exemptions and incentives, e) no surcharges, and f) clearly articulated exemptions