Why is Fiscal Discipline important To improve investment ii Increasing Credit availability to p...........

Economic and Social Issues Budgeting and Fiscal policy

15th Finance Commission’s Chairman NK Singh has pitched for an institutional mechanism like a ‘Fiscal Council’ to enforce fiscal rules and keep a check on the Centre's fiscal consolidation. According to International Monetary Fund (IMF), IFCs are now an indispensable part in the design of fiscal frameworks aimed at guiding fiscal policymakers’ discretion. An independent fiscal council can bring about much needed transparency and accountability in fiscal processes across the federal polity.Faster growth in nominal gross domestic product (GDP) usually leads to faster growth in tax collections. However, in India, tax buoyancy shows no stable pattern and hence, forecasting tax revenues is difficult.

Why is Fiscal Discipline important?

To improve investment

ii.Increasing Credit availability to private sector

iii.To control inflation

iv.Budget management

Select the correct answer using the code given below.

i, ii and iii only

i, iii and iv only

i and iv only

All of the above

None of these

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Explanation:

Fiscal Discipline is important because of the following reasons

To improve investment: Pile-up of past domestic debt that severely restricts the ability to finance new investment.

Increasing credit availability to private sector: As more money is lent to government rather than invested in the market, corporate sector is crowded out leading to slower industrial and capital asset growth and potential loss of employment.

Control inflation: Too much of government debt can lead to inflation and reduction in real interest rates. It might prompt people to invest more in gold and real estate, thereby accentuating the problem of poor economic liquidity and black money.