Fiscal Discipline
- January 17, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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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.