Fiscal Deficit Target: IMF’s 3% Advice vs Government View
Why in the news
The IMF wants India’s central fiscal deficit near 3% of GDP, but the government says that is difficult because capital spending once done by state-owned enterprises (SOEs) now sits in the Union budget.
IMF vs government
| Issue | View |
|---|---|
| IMF | Centre at 3% of GDP; Centre plus states under 6% |
| Government | 3% is hard to meet; fully removing the revenue deficit could hurt growth |
| Common ground | Consolidation is needed but should be gradual given global uncertainty |
Debt strategy
- Most public debt is long-term, fixed-rate and domestically held, lowering risk.
- Target: 50% of GDP by FY31 from 57.1% in FY25.
- FY26 target: 56.1%, assuming nominal GDP growth of 10.1%.
IMF recommendations
- Revamp the FRBM Act with medium-term projections, clear roadmaps for Centre and states, and escape clauses for shocks.
- Raise revenue by simplifying GST, reversing earlier GST rate cuts and fuel excise cuts, broadening the income tax base and aligning domestic energy prices with global rates.
- Rationalise spending: targeted subsidies, direct cash transfers and review of budget schemes.
Exam angle
- Law to be revamped: FRBM Act.
- Debt targets: 50% by FY31; 56.1% in FY26.