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UPSC CIVIL SERVICES EXAMINATION
MAINS ANSWER WRITING PRACTICE
LECTURE 20
CSE MAINS
An answer a day paves your way for Mussoorie stay!
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UPSC CIVIL SERVICES EXAMINATION
MAINS ANSWER WRITING PRACTICE
LECTURE 20
CSE MAINS
www.civilstap.com
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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IDENTIFICATION OF KEYWORDS
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INTRODUCTION
Explaining the context or the premise of the ‘central idea’ / FRBM Provisions in brief
1 As per a recent Reserve Bank of India (RBI) report on state government finances, the consolidated fiscal deficit of the state governments in FY18 was 3.1%, against the budget estimate of 2.7%. A look at the long-term trend shows that the share of state government fiscal deficit has been widening from 18% in FY12 to 44% in FY18
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BUFFER LINE
There are various factors that have caused increasing fiscal deficit of the states which can be discussed as follows:
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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INCREASING STATE FISCAL
DEFICIT
UDAY Scheme
Farm Loan
Waiver
Pay Revision
GST Reforms
State governments’ debt has risen sharply in the last few years due to the UDAY scheme, farm loan waivers, pay revisions and some undesirable impact of the GST reform.
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BODY
Ujjawal Discom Assurance Yojana has placed asymmetric impact in some states. Interest obligations arising out of these fiscal distress alone results in large debt.
example, in the FY16, post-UDAY, Rajasthan’s fiscal deficit has increased more than 9%of gross state domestic product (GSDP)
UDAY SCHEME
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
In the last fiscal year, farm loan waivers were important factors putting pressure on governmentfinances, thereby derailing fiscal discipline (under FRBM Act).
Total farm debt waiver accounted for 0.3% of GDP (Likely to be repeated in the election year).
FARM LOAN WAIVER
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
The committed liabilities of states may rise in case they decide to implement the recommendations of their own pay commissions in FY18.
PAY REVISIONS
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
Enactment of Goods and Services Tax (GST) has been a landmark reform in the financialhistory of India.
Although the recently released RBI report projects a positive potential of the GST toimprove revenue performance of the states and support fiscal consolidation yet, there arecertain apprehensions as well.
GST REFORM
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
While the state governments’ expenditure commitment has increased over time in linewith the spirit of fiscal federalism, they still have limited autonomy in revenue collection.The states’ own revenue as a percentage of total revenue receipt is around 50%, whilethe rest is transferred by the Centre.
With the introduction of the GST, state autonomy reduces further as states do not havethe power to independently decide GST rates. The rates are decided jointly by the Centreand states.
GST REFORM
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
So far, the monthly collection from GST has been falling short of target. While states will be compensated by the Centre for the shortfall of GST revenue collection,
the shortfall is nevertheless concerning. The recent reduction in GST rates for many items heightens concerns about revenue
collection.
GST REFORM
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BUFFER LINE
All these reasons amounting to an increasing fiscal deficit of the states is a cause of concern due to the following reasons.
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
As per the commitments of fiscal federalism, the states expenditure commitments haveincreased. But this will be of no use if the fiscal prudence is not followed.
Such a scenario would amount to the failure of the philosophy behind FRBM Act.
DERAILMENT OF FRBM
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
State finances also become important because of state governments’ increased relianceon market borrowings.
The share of market borrowings in financing states’ fiscal deficit is estimated to increasefrom 63% in FY15 to 91% in FY19.
Hence, the widening of state fiscal deficit now has more direct implications for interestrates in the economy.
INTEREST RATES
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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BODY
Non-productive expenses like farm loan waivers are eating into the capital expenditure ofstates.
Capital expenditure as a percentage of total state government expenditure has fallen to17% in FY18 and FY19 from 20% in FY17.
DERAILMENT OF CAPITAL EXPENDITURE
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
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Amidst the factors discussed, the states need to be extremely cautious as they gethigher expenditure responsibility with a limited revenue collection.
Also while doing so it would be imperative for the States to ensure that the quality ofthe expenditure is not adversely impacted (as reflected by the rising ratio of revenue tocapital expenditure).
CONCLUSION
Q. Discuss the reasons behind the increasing fiscal deficit of the States.
Why is it a cause of concern? 250 words (15)
