Q What were the reasons for the introduction of Fiscal Responsibility and Budget Management (FRBM) Act, 2013? Discuss critically its salient features and their effectiveness. (UPSC IAS/2018)
Q The public expenditure management is a challenge to the Government of India in the context of budget making during the post-liberalization period. Clarify it. (UPSC IAS/2019)
Q How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position? (UPSC IAS/2021)
Mentor comment: Fiscal deficit is considered a problem in India because it leads to increased government borrowing, which can raise public debt to unsustainable levels. This borrowing often crowds out private investment by driving up interest rates, making it more expensive for businesses to borrow. Additionally, financing the deficit by printing money can lead to inflation, eroding consumers’ purchasing power. It also places a burden on future generations, who will have to pay off the debt. In today’s editorial, we will be having a look on how the high fiscal deficits can undermine investor confidence, potentially resulting in credit downgrades and higher borrowing costs.
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Let’s learn!
Why in the News?
The FM in the Union Budget of 2024-25 stated that, from 2026-27 onwards, Indian govt will focus to reduce the fiscal deficit each year to ensure that the debt declines as a percentage of GDP.
The speech also says that the Centre’s fiscal deficit would be reduced to 4.5% of GDP in 2025-26 from its budgeted level of 4.9% in 2024-25.
About the Fiscal Deficit: • Fiscal Deficit is excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year. • Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-Debt Creating Capital Receipts).
What is the National Debt? • The national debt is the total amount of money that the government owes to its lenders at a particular point in time. It is different from the fiscal deficit. • In simple, it is the amount of debt that has accumulated by the government over many years of running fiscal deficits and borrowing to bridge the deficits.
What are the implications of the Fiscal deficit?
Negative Implications:
Inflationary Pressure: When a country’s government runs a persistently high fiscal deficit, this can eventually lead to higher inflation as the government will be forced to use fresh money issued by the central bank to fund its fiscal deficit.
It also eventually leads to a higher ratio of interest payments to revenue receipts. Hence there will be lower shares for financing non-interest expenditures.
Crowding Out effect: When the government borrows a large portion of available funds from financial markets to finance its deficit, it crowds out private investment with reduced access to credit for businesses and individuals.
This can hinder economic growth and productivity.
Reduced Fiscal Space: A high fiscal deficit limits the government’s ability to respond to economic shocks or crises.
With limited fiscal space, the government may be unable to implement countercyclical fiscal policies such as increased spending or tax cuts to stimulate economic growth during downturns.
Difficulty in borrowing: As a government’s finances worsen, demand for the government’s bonds begins to drop, forcing the government to offer to pay a higher interest rate to lenders.
Positive Implications of Lower Fiscal Deficit:
Improve Credit Ratings: Higher credit ratings make it cheaper for India to borrow in global markets, reducing the cost of external debt.
Enhance the space for development: Less money is diverted to debt servicing while the fiscal deficit is lower, which leaves more funds for development projectslike infrastructure, education, and healthcare.
This can enhance investor confidence,leading to increased foreign and domestic investment.
Improve the Balance of Payment: Lower deficits will be reducing the reliance on foreign borrowing. It will help in stabilizing the exchange rateand the overall current account.
What are the reforms needed?
Infrastructure Finance Reforms: Improving mechanisms for financing infrastructure projects by involving the private sector through public-private partnerships (PPP), infrastructure bonds, and development of finance institutions.
Recommendations: The NK Singh committee in 2017proposed a draft Debt Management and Fiscal Responsibility Bill, 2017 which need to be implemented comprehensively.
Incentivizing Financial Savings: Promoting higher household financial savings through tax incentives on financial products, improving returns on long-term savings schemes, and enhancing financial literacy.
The Public Accounts Committee (PAC) has included a review of SEBI’s performance, amid political controversy surrounding chairperson Madhabi Puri Buch following Hindenburg Research’s allegations.
What are the allegations against SEBI?
Conflict of Interest: SEBI chairperson Madhabi Puri Buch faces conflict of interest allegations due to her past ICICI Bank role amid Adani investigations.
Toxic Work Environment: Reports have surfaced from approximately 500 SEBI employees claiming that the work culture at the regulatory body is “toxic and fearful.” This has led to demands for an impartial inquiry into the alleged workplace issues and the overall management of SEBI.
Response to Allegations: Buch and SEBI have denied wrongdoing, asserting that all necessary disclosures and recusal norms have been followed diligently.
Significance and Functions of the Public Accounts Committee (PAC)
The PAC was introduced in 1921 after its first mention in the Government of India Act, 1919 (Montford Reforms).
Oversight Role: The PAC serves as a parliamentary watchdog for government spending, ensuring accountability and transparency in the use of public funds. It plays a crucial role in auditing the revenue and expenditure of the government.
Review of Regulatory Bodies: The PAC has the authority to review the performance of regulatory bodies established by the Act of Parliament.
Suo-motu subjects: The PAC can select subjects for in-depth examination beyond the standard audit reports, allowing it to address pressing issues that may arise in the public interest, such as the allegations against SEBI’s chairperson.
Advisory Role: While the PAC can make recommendations based on its findings, it does not have the authority to enforce compliance. Its recommendations are advisory in nature.
How SEBI can improve its regulation considering recent challenges? (Way forward)
Enhanced Disclosure Regulations: SEBI has already made progress with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2023, but further refinement is needed.
It should focus on clarifying the scope of disclosures required from companies, particularly regarding financial irregularities and conflicts of interest.
Bolstering Whistleblower Protections: SEBI should strengthen its whistleblower protection framework to encourage the reporting of internal issues or malpractices, ensuring accountability and protection for informants.
Improving Internal Governance and Work Culture: SEBI can address concerns about a toxic work environment by conducting independent reviews of its internal governance, improving employee welfare, and fostering a transparent, positive work culture.
Collaborating with Global Regulatory Bodies: SEBI can work more closely with global financial regulators to align with international best practices and enhance cross-border market oversight, ensuring that India’s markets remain resilient and transparent.
The National Tiger Conservation Authority (NTCA), the apex body responsible for tiger conservation, recently issued directives urging 19 States to prioritize the relocation of villagers residing in core tiger zones.
NTCA’s Directive:
According to the NTCA, 591 villages, comprising 64,801 families, reside in the core tiger zone, posing a significant concern for tiger conservation.
The core zone refers to the part of a tiger reserve where human activities such as hunting and forest produce collection are PROHIBITED, and tribals CANNOT reside.
Outside the core zone is the buffer zone, where certain activities are allowed but regulated.
About National Tiger Conservation Authority (NTCA):
Details
Constitution
Statutory body under MoEFCC, constituted under Wildlife (Protection) Act, 1972.
Chairmanship
Chaired by the Minister for Environment and Forests.
Structure
• 8 experts in wildlife conservation and tribal welfare.
• 3 MPs.
• Inspector General of Forests as ex-officio Member Secretary.
Objectives
• Provide statutory authority to Project Tiger.
• Enhance Centre-State accountability in managing Tiger Reserves.
• Provide parliamentary oversight.
• Address livelihood concerns of local communities.
Powers and Functions
• Approve state-prepared tiger conservation plans.
• Prevent unsustainable land use in Tiger Reserves.
• Set standards for tourism and tiger conservation guidelines.
• Conduct tiger censuses (via M-STrIPES app).
• Support biodiversity conservation through eco-development and people’s participation.
Key Initiative
• Project Tiger, a Centrally Sponsored Scheme for in-situ conservation of tigers, launched on April 1, 1973.
PYQ:
[2014] Consider the following statements:
1. Animal Welfare Board of India is established under the Environment (Protection) Act, 1986.
2. National Tiger Conservation Authority is a statutory body.
3. National Ganga River Basin Authority is chaired by the Prime Minister.
Which of the statements given above is/ are correct?
Recent research reveals that FD&C Yellow 5, a common food dye, can temporarily make tissue transparent, with potential implications for cancer treatment and medical procedures.
AboutYellow Food Dye
FD&C Yellow 5, also known as Tartrazine, is a widely used synthetic food dye found in various snacks, drinks, and processed foods.
Approved by the FDA, it is commonly used to give products a vibrant yellow color.
How does it work?
The dye has the ability to make tissue transparent is based on its interaction with light, specifically through the Kramers-Kronig relations, a principle in physics.
It absorbs blue light, leaving only the red-orange spectrum visible.
This alters the refractive index of water, causing it to match the refractive index of fats and proteins in tissue.
When the refractive indices match, light can pass through tissue with less scattering, creating the appearance of transparency.
Potential Medical Applications of Yellow Food Dye
Cancer Treatment: By making tissues transparent, FD&C Yellow 5 could enhance photodynamic and photothermal therapies, allowing laser light to reach deeper tissues and target cancerous cells more effectively.
Vein Visibility: Transparent tissues could help make veins more visible, aiding in procedures like venepuncture for blood draws or injections, particularly in patients with hard-to-see veins.
Non-invasive Diagnostics: The dye could allow doctors to visualize internal organs and structures without the need for invasive procedures like biopsies or expensive imaging technologies like CT scans or MRIs.
PYQ:
[2018] Consider the following statements:
1. The Food Safety and Standards Act, 2006 replaced the Prevention of Food Adulteration Act, 1954.
2. The Food Safety and Standards Authority of India (FSSAI) is under the charge of Director General of Health Services in the Union Ministry of Health and Family Welfare.
Which of the statements given above is/are correct?
The Union Ministry of Textiles has launched India’s first fashion forecasting initiative ‘VisioNxt’.
AboutVisioNxt Initiative
Details
Launched By
National Institute of Fashion Technology (NIFT) in collaboration with the Ministry of Textiles, Government of India.
Objective
To provide India-specific fashion trend insights and reduce dependence on global forecasting agencies.
Significance
India’s first initiative to integrate Artificial Intelligence (AI) and Emotional Intelligence (EI) to forecast fashion trends.
Key Features
Delivers localized fashion trend insights tailored for Indian designers, manufacturers, and retailers.
Provides forecasts reflecting India’s cultural diversity and socio-economic nuances.
Designed to support the Indian fashion and retail market with consumer-focused trend data.
AI Model Used
“DeepVision” – AI-based model that decodes Indian fashion patterns, analyzing attributes like style, color, and regional influences.
Accessibility
Bilingual resources (Hindi and English) through a web portal, making the insights accessible to a broader range of stakeholders in the Indian fashion industry.
Goal
To empower Indian fashion professionals with India-specific data, reducing reliance on international forecasting systems.
PYQ:
[2019] What makes the Indian society unique in sustaining its culture? Discuss.
The World Health Organization (WHO) released its first-ever global guidance on managing antibiotic pollution from manufacturing processes.
What is Antibiotic Pollution?
Antibiotic pollution refers to the contamination of natural environments, particularly water and soil, by antibiotics.
This pollution occurs when antibiotics are released into ecosystems through various sources, leading to the proliferation of antimicrobial resistance (AMR).
AMR happens when bacteria, viruses, fungi, and parasites evolve to resist the effects of antibiotics, making infections harder to treat and posing a significant threat to global health.
How does Antibiotic Pollution occur from the Manufacturing Process?
Wastewater Discharge: Antibiotic plants release wastewater with residual antibiotics and active pharmaceutical ingredients (APIs) into local water bodies, contributing to drug-resistant bacteria.
Improper Solid Waste Disposal: Unused antibiotics, raw materials, and by-products are often disposed of improperly, contaminating soil and groundwater.
Inadequate Treatment: Many facilities lack effective systems to treat pharmaceutical waste, allowing antibiotics to enter the environment.
Mass Balance Calculations: Inefficient systems or mismanagement can lead to unintentional antibiotic discharge during recycling and waste estimation.
Leaks and Spills: Accidental leaks or spills during manufacturing, transportation, or storage introduce antibiotics into ecosystems.
Runoff: Rainwater can carry antibiotics from waste into nearby rivers, lakes, or agricultural land, further contaminating the environment.
The financial relationship between the Union and State governments in India is imbalanced, similar to other nations with a federal constitutional structure.
What is Vertical Fiscal Imbalance (VFI)?
Vertical fiscal imbalance (VFI) refers to the mismatch between the revenue-raising powers and expenditure responsibilities of different levels of government (between the Center and state) within a country.
Why should Vertical Fiscal Imbalance (VFI) be reduced?
Decentralization of Expenditure: States are responsible for 61% of the revenue expenditure, focusing on crucial sectors like health, education, and infrastructure, but they generate only 38% of the revenue.
This imbalance creates a dependency on central transfers, limiting the States’ fiscal autonomy.
Need Efficiency in Spending: Reducing VFI would provide states with more resources, allowing them to respond better to local needs and improve governance efficiency.
Need to strengthen Fiscal Federalism: A reduction in VFI promotes a healthier system of cooperative federalism, ensuring that states have adequate resources to carry out their constitutional responsibilities and meet the demands of their populations.
Need Preparedness for crises: VFI becomes more pronounced during crises (e.g., COVID-19), leading to fiscal stress for States. A more balanced fiscal arrangement ensures better crisis management at the sub-national level.
Present Scenario of VFI and Tax Devolution in India
VFI Extent: The 15th Finance Commission noted that despite States‘ heavy spending responsibilities, their revenue-raising powers are limited.
Tax Devolution Rates: The 14th and 15th FC recommended devolving 42% and 41%, however, estimates suggest that an average share of 48.94% was necessary between 2015-2023 to eliminate the VFI.
Exclusion of Cesses and Surcharges: The exclusion of cesses and surcharges from the divisible pool of taxes shortens the net proceeds. States argue this limits the resources available to them to meet their expenditure responsibilities.
Fiscal Responsibility: Despite the constraints, states have largely adhered to borrowing limits under fiscal responsibility legislation. However, states still struggle to meet their expenditure responsibilities, highlighting the need for greater financial support from the Centre.
Note: The Sixteenth Finance Commission was constituted on December 31 2023 with Dr. Arvind Panagariya as the Chairman. The 16th FC has been requested to make its report available by the 31st day of October 2025 covering 5 years commencing on the 1st day of April, 2026.
What should be the role objective of the 16th FC?
Increase Tax Devolution: Many States demand that tax devolution from the Union’s net proceeds should be raised to 50%. The 16th Finance Commission must consider raising the devolution rate to around 49% to address the VFI and ensure sufficient untied funds for States.
Address Cesses and Surcharges: The 16th Finance Commission should evaluate the exclusion of cesses and surcharges from the divisible pool.
Empower States with Fiscal Autonomy: The Commission’s objective should be to empower States with greater fiscal autonomy by ensuring adequate resources for them to perform their constitutional duties without undue dependence on the Centre.
Support Local Priorities: The Commission should aim to provide States with untied resources, enabling them to cater to jurisdictional needs and set priorities that align with their specific developmental challenges, ensuring a more responsive governance system.
An elephant was rescued from a rail barricade in the Maddur range of Bandipur Tiger Reserve.
About the Bandipur Tiger Reserve (BTR):
Details
Location
Mysore and Chamarajanagar districts, Karnataka; at the tri-junction of Karnataka, Tamil Nadu, and Kerala.
Part of
Nilgiri Biosphere Reserve, a UNESCO World Heritage Site.
Geography
“Ecological confluence” of the Western and Eastern Ghats (along with Mudumalai and Wayanad)
History
Established as Venugopala Wildlife Park in 1931; expanded as Bandipur Tiger Reserve under Project Tiger in 1973.
Surrounding Reserves
Bordered by Nagarahole Tiger Reserve (NW), Mudumalai Tiger Reserve (S), and Wayanad Wildlife Sanctuary (SW).
Rivers
Surrounded by River Kabini (North) and River Moyar (South).
Climate
Tropical climate with distinct wet and dry seasons.
Flora
Dry deciduous to tropical mixed deciduous forests; includes rosewood, sandalwood, Indian laurel, and bamboo species.
Fauna
Home to the largest population of wild Asian elephants in South Asia; also includes Bengal tiger, gaur, sloth bear, dhole, and others.
PYQ:
[2017] From the ecological point of view, which one of the following assumes importance in being a good link between the Eastern Ghats and the Western Ghats?
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