Fiscal Discipline

Fiscal Discipline

Subject – Economy

Context – Fiscal discipline, digital economy must be the policy focus: Ruchir Sharma

Concept –

• Fiscal Discipline refers to a state of an ideal balance between revenues and expenditure of government, in an economy. If the fiscal discipline is not maintained, then the government expenditure exceeds government receipts.
  • Under this condition, the government would have to borrow funds or incurred with deficit financing from the central bank. This may depreciate the currency and create inflation in an economy.
• It is the ability of a government to sustain smooth monetary operation and long-standing fiscal condition.
• It is a benchmark for tax devolution. It was used since 11th Finance Commission to provide an incentive to states handling their finances deliberately.

Debt

• Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase.
• The debt may be owed by sovereign state or country, local government, company, or an individual.
• Loans, bonds, notes, and mortgages are all types of debt.
• In financial accounting, debt is a type of financial transaction, as distinct from equity.

Debt-to-GDP ratio is the ratio between a country’s debt and its gross domestic product. It is a reliable indicator on how capable a country is in paying its debts.