India's Fiscal Woes

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India's fiscal challenges are rooted in ineffective tax systems, rising debt, and growing expenditure pressures.

India faces significant fiscal challenges due to structural inefficiencies in its tax system, rising government expenditure, and an increasing public debt burden. The country's revenue generation remains insufficient, especially in light of growing social sector spending and subsidies. The government has been forced to rely heavily on borrowing, which exacerbates the fiscal deficit and impacts long-term economic stability. India’s tax-to-GDP ratio remains one of the lowest globally, making it difficult to meet expenditure commitments without further borrowing. Additionally, subsidies, especially in sectors like food and fuel, continue to strain the budget.

The rising interest payments on government debt are consuming a larger share of the national budget, limiting the ability to spend on development and infrastructure. Furthermore, the slow pace of tax reforms, coupled with the informal economy, hinders efforts to broaden the tax base. While some reforms, such as the Goods and Services Tax (GST), have shown promise, the challenge remains in improving compliance and broadening the tax net.

India’s fiscal policy needs to focus on improving revenue collection, cutting wasteful expenditures, and implementing structural reforms to boost economic growth. Tackling fiscal issues is critical for ensuring sustainable public finances and the country’s overall economic health.