Highlighting the factors contributing to high fiscal deficit in India, discuss the potential consequences of such deficit and suggest measures to ensure fiscal consolidation. (10 marks, 150 words)

Factors contributing to the high fiscal deficit:

i) Low tax revenue collection by the government - direct and indirect tax.

ii) Low tax base - activities such as agriculture not included

iii) High revenue expenditure of the government

(a) High pensions and salaries for officers.

iv) High capital expenditure - increased from 1.4% to 2.0% of total expenditure

v) Subsidies - food, fuel and fertilizers along with expenditure in welfare schemes. (eg PM Awas Yojana.

Consequences of such deficit:

Borrowing by the government to finance the deficit

Burden to reduce expenditure on social welfare

Measures to be taken:

Reduction in revenue expenditure (eg Ayyoijith scheme)

Increased capital expenditure - multiplier effect → increase tax income

Prevent leakages and corruption in subsidies and schemes. (eg MGNREGA social audit)

Tech usage to increase tax collection.

— Aditya Agarwal · AIR 1