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Day 11 – Q 2.Improving the fiscal situation will play an important role in ensuring inclusive growth in India. Don you agree? Substantiate.

 2. mproving the fiscal situation will play an important role in ensuring inclusive growth in India. Don you agree? Substantiate.

राजकोषीय स्थिति में सुधार भारत में समावेशी विकास सुनिश्चित करने में महत्वपूर्ण भूमिका निभाएगा। क्या आप सहमत हैं? पुष्टी करें।


Inclusive growth refers to the economic growth that is distributed fairly across the society and creates opportunities for all. In Indian context, stark economic inequalities necessitate fiscal actions for ensuring inclusive growth.


Fiscal situation and Inclusive growth

  • Many economists argue that fiscal deficit promotes growth as it stimulates demand. It boosts inclusive growth as it includes increasing public expenditure on poor as well as on education and health.
  • Active public expenditure policies to increase consumption of poor are also seen as more effective in promoting inclusive growth as poor have high propensity to spend which has multiplier effect on the entire economy.
  • Further, due to limitations of impact of monetary policy in fostering broadbased growth, burden of growth stimulation falls on fiscal policy.
  • At the same time, it is important to consider the negative consequences of a bulging fiscal deficit like crowding out effect, higher interest rates, low public savings, highet inflation and increase in taxes.

These factors impact the prospects of inlcusive growth adversely thus necessitating fiscal prudence. Fiscal prudence can help in achieving the goals of inclusive growth in following manner-

  • Reduced fiscal deficit will help in achieving the goals of Fiscal Responsibility and Budget Management Act, 2003 (FRBM act) thus improving macroeconomic stability. Recent reduction of Fiscal Deficit target to 3.3% of GDP from earlier announced 3.4% is a step in this direction.
  • Unchanged gross market borrowings and increased relaince on overseas markets for borrowings, as announced recently, has helped in maintianing fiscal discipline.
  • Increased returns from disinvestments and dividends from RBI/financial institutions has improved funds transfer to programmes like PMAY and social sector schemes.
  • Multipronged efforts in this regard have helped in job creation and augmenting of incomes.

The fiscal space created due to responsible expenditure and creative revenue generation policies have led to increased investment targets towards sector’s like infrastructure( PMAY, Bharatmala and Sagarmala projects, UDAN, etc), education( Samagra shiksha, RISE, etc) and health( Ayushman Bharat) along with simplification of labour laws which is giving an inclusive character to Indian growth story.

At the same time, recent slowdown in growth has impacted government expenditure where compression of government spending has been an important driver of sharp decline in economic growth. Such a slowdown has also impacted the prospects of inclusive growth as lack of overall economic growth hampers consumption and investment cycles.

Way Forward:

  • Fiscal reforms to create enough fiscal space to increase pro-poor spending and revive growth.
  • Fixing GSTN to avoid revenue shortfall as it has been major stumbling block in realisation of GST revenues.
  • Extending PM-KISAN type income support schems to all citizens through initial rationalisation of subsidies.
  • Increasing education, health and infrastructure spending by around 1% of GDP each.
  • Decreasing tax exemptions towards one’s whose public benefit is unclear.


Following increasingly prudent fiscal policies, as can be seen from recent budget, combined with a focus on rural economy, MSME sector, affordable housing and other related sectors can help render the Indian growth story more inclusive.

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