Topic– Indian economy – issues
5) Discuss the key challenges to maintenance of fiscal discipline by the states. Examine the provisions of FRBM act that seeks to maintain fiscal discipline of the states. Also suggest alternatives to this end.(250 words)
Why this question
The maintenance of Fiscal discipline by the states is critical for stability of the economy. Economic survey last year had discussed this issue in depth. The tools at our disposal towards this end needs to be understood and analyzed.
Key demand of the question
The question demands us to first explain the key challenges which impact the ability of the state government to maintain their fiscal discipline. Next, we have to discuss in detail the provisions of the FRBM Act which tries to bring in fiscal discipline among the states and the effectiveness of those provisions. Finally, if any alternative is available which will help us achieve this end in a better way, is to be brought out.
Discuss – The various issues faced by the states in maintaining fiscal discipline needs to be brought out.
Examine – When you are asked to examine, you have to probe deeper into the topic, get into details, and find out the causes or implications if any .
Structure of the answer
Introduction – Briefly explain why maintaining fiscal discipline by the states is necessary.
Body -Bring out the position with respect to Fiscal Deficit of the various states and whether or not states are maintaining fiscal discipline. Discuss the challenges in maintaining fiscal discipline by the states. The provisions of the FRBM Act such as checks on fiscal deficit of the states, their ability to borrow etc. Examine whether these provisions have worked. Finally, suggest some alternative – such as utilizing market forces to push states towards fiscal discipline by linking their ability to mobilize resources from the market by linking it to adherence to fiscal standards.
Conclusion – Present your view and the way forward.