IamAJober: 5(B).Rising fiscal deficit during the 21st century has been, by and large, responsible for the surge in public debt for the Centre-States in India." Examine. '21వ శతాబ్దంలో భారతదేశంతో కేంద్ర, రాష్ట్రాల ప్రభుత్వ ఋణం పెరగటానికి, మొత్తం మీద పెరుగుతున్న ద్రవ్య లోటు కారణమవుతుంది." పరిశీలించుము.

5(B) Question:
"Rising fiscal deficit during the 21st century has been, by and large, responsible for the surge in public debt for the Centre-States in India." Examine.
(1000 words | English | Summary in Telugu | Tricks to remember | 30 examples)

🌐 Introduction

India's fiscal journey in the 21st century has been characterized by persistent fiscal deficits at both the Central and State levels. A fiscal deficit occurs when a government's total expenditure exceeds its total revenue (excluding borrowings). When fiscal deficits remain high over time, governments often borrow to fill the gap—this borrowing accumulates into public debt.

This essay critically examines how rising fiscal deficits have largely contributed to the increase in public debt for both Centre and States in India, and the economic implications thereof.

🧩 Understanding the Core Concepts

🔹 Fiscal Deficit

Definition: Excess of total government expenditure over total revenue (excluding borrowings).
Formula:
Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts)

🔹 Public Debt

Public debt refers to the total outstanding borrowings of the government (both internal and external).
It is often the direct result of fiscal deficits, which are financed through borrowings.

🏛️ India’s Fiscal Deficit & Public Debt Trends in the 21st Century

📈 Central Government:

Fiscal deficit averaged around 3.5–6.5% of GDP in most years post-2000.
2008–09 (Global Financial Crisis): Shot up to 6.4%
2020–21 (COVID-19 pandemic): Jumped to 9.2%
Result: Public debt increased from around 48% (2000) to nearly 58.9% of GDP (2022)

📉 States:

Fiscal Responsibility and Budget Management (FRBM) Act helped moderate state deficits.
Yet, state debt increased due to UDAY (Power sector bailout), farm loan waivers, welfare schemes, etc.
State debt as % of GDP rose from 22% (2011–12) to 31% (2022)

🔍 Examination of the Link: Fiscal Deficit → Public Debt

🔸 1. Borrowing to Cover Deficits

When revenue is insufficient, governments borrow by:

Issuing government securities
Borrowing from institutions (e.g., LIC, NABARD)
Borrowing externally (Multilateral agencies)

🔸 2. Fiscal Stimulus and Crises

During economic shocks (2008, 2020), fiscal stimulus raised expenditures.
Revenue shortfalls led to debt-financed spending.

🔸 3. Populist Welfare Policies

Free power, pensions, subsidies.
Not matched by revenue, leading to deficits → debt.

🔸 4. Interest Payments → Further Debt

As debt grows, interest payments rise.
Governments borrow even to pay interest, worsening the situation.

⚖️ Arguments Supporting the Statement

Point	Explanation
1. Structural Deficit	India faces structural (persistent) fiscal deficit, requiring constant borrowing.
2. Revenue Shortfall	Tax-GDP ratio in India remains low (~11–12%). This worsens the gap.
3. Capital Expenditure via Borrowing	Big infra projects (roads, railways, PM Gati Shakti) are debt-funded.
4. States' Dependence on Centre	Despite fiscal decentralization, states rely on central transfers & borrowings.
5. Poor Tax Buoyancy	Even in growth years, revenue does not rise proportionately to GDP.

🧯 Counter-View: Other Causes of Debt Beyond Fiscal Deficit

➤ 1. Off-budget Borrowings

Food subsidies, oil bonds, UDAY bonds not shown in fiscal deficit.

➤ 2. Contingent Liabilities

Loans guaranteed by governments (PSU debts) affect overall debt even if not counted in deficit.

➤ 3. Natural Disasters & Emergencies

E.g., COVID led to emergency spending regardless of fiscal position.

➤ 4. External Debt Volatility

Exchange rate changes can inflate the value of external debt.

📌 Impacts of Rising Public Debt

🔻 Reduced fiscal space for future spending
💸 Higher interest payments: About 20–25% of revenue goes to interest
🔁 Debt trap risk: Borrowing to repay old debt
🧨 Crowding out: Private investment declines due to government borrowing
⚖️ Reduced credit rating: Impacts investor confidence

🛠️ Policy Measures Taken

FRBM Act (2003): Targets to control deficits
15th Finance Commission: Suggested greater fiscal discipline
GST Compensation Fund: Helped states reduce revenue stress
Disinvestment: Used to reduce debt burden
Debt-GDP Ratio Target: Centre and States together to maintain < 60%

🧠 Thinking Process – Simplified Flowchart (Mind Map Style)

Rising fiscal deficit ➝
More borrowings ➝
Increased public debt ➝
Higher interest outgo ➝
Fiscal pressure ➝
Risk of debt trap

🎯 Memory Tricks (Telugu + English)

TRICK – “FAB DIP”

F = Fiscal deficit
A = Accumulated interest
B = Borrowings
D = Debt increases
I = Interest burden grows
P = Populist policies

📌 In Telugu (Mnemonic): "FAB DIP అంటే పటేరు ఖర్చులు - అప్పులు పెరుగుతాయి – వడ్డీలు మించిపోతాయి – చక్రవ్యుహం!"

📚 30 Real-Life Examples Supporting the Link Between Fiscal Deficit & Public Debt

Year/Event	Explanation
1. 2001	Earthquake in Gujarat → relief debt
2. 2004	Farm debt waivers start
3. 2008	Global crisis → deficit jumps
4. 2009	6th Pay Commission → spending spike
5. 2012	Oil subsidies → off-budget borrowings
6. 2013	Fiscal consolidation begins under FRBM
7. 2014	States demand more devolution → pressure
8. 2015	UDAY scheme launched – Rs. 2.3 lakh crore
9. 2016	Demonetisation → revenue disruption
10. 2017	GST implementation → state deficits
11. 2018	State election freebies (loan waivers)
12. 2019	PM KISAN scheme – large expenditure
13. 2020	COVID-19 – fiscal deficit rises to 9.2%
14. 2020	Aatmanirbhar Bharat borrowing
15. 2020	States allowed 5% fiscal deficit
16. 2021	Emergency health infra borrowing
17. 2021	GST compensation delays – states borrow
18. 2022	Oil price rise – Centre avoids taxes, borrows
19. 2023	PM Gati Shakti infra push
20. 2023	Defence modernization borrowing
21. 2024	Free electricity promises in states
22. 2024	Rajasthan OPS return → debt burden
23. 2024	Tamil Nadu free breakfast scheme
24. 2024	High fertilizer subsidy
25. 2024	Delay in PSU disinvestment
26. 2024	Railway capital infusion by debt
27. 2024	Delay in divestment of Air India
28. 2025	Urban infra boost – Smart Cities 2.0
29. 2025	Climate change borrowing for green energy
30. 2025	Welfare populism in state elections

📌 Conclusion

The rise in public debt for both the Centre and the States in India during the 21st century is closely linked to rising fiscal deficits. While some of this borrowing is necessary and productive (capital creation, welfare), excessive and poorly planned deficit financing leads to unsustainable debt. Prudent fiscal management, improved tax revenues, and disciplined spending are key to ensuring debt sustainability in the future.

📝 Summary in Telugu:

21వ శతాబ్దంలో కేంద్ర, రాష్ట్ర ప్రభుత్వాల ద్రవ్య లోటు స్థాయులు పెరిగాయి. ఈ లోటును భర్తీ చేయడానికి అప్పులు తీసుకుంటుండడంతో ప్రభుత్వ ఋణ భారం పెరిగింది. గ్లోబల్ ఫైనాన్షియల్ క్రైసిస్, కోవిడ్ వంటి ఘటనలు, వ్యవసాయ రుణ మాఫీలు, ఉచిత పథకాలతో ప్రభుత్వం ఎక్కువ ఖర్చు చేసింది. దీని వల్ల ద్రవ్య లోటు పెరిగింది. ఈ లోటును భర్తీ చేయడానికి ప్రభుత్వాలు అప్పులు తీసుకున్నాయి. దీనివల్ల వడ్డీ భారం పెరిగింది, తద్వారా భవిష్యత్తులో ఖర్చు అవకాశాలు తగ్గిపోతున్నాయి.

DeDeep

## Examination: Rising Fiscal Deficit & Public Debt in India (21st Century)

**Introduction**

The statement that rising fiscal deficits are "by and large" responsible for the surge in public debt for both the Centre and States in India during the 21st century holds substantial validity. Fiscal deficit (FD), the gap between a government's total expenditure and its total receipts (excluding borrowings), is primarily financed by borrowing. This borrowing directly adds to the government's outstanding debt stock. While other factors like interest payments and off-budget liabilities contribute, the persistent and often high fiscal deficits witnessed since 2000 have been the primary engine driving the accumulation of public debt.

**The Core Mechanism: Deficit Drives Debt**

1. **Direct Causation:** By definition, a fiscal deficit must be financed. The primary methods are:

* **Market Borrowings:** Issuing government securities (G-Secs for Centre, SDLs for States).

* **Other Liabilities:** Borrowing from the Reserve Bank of India (RBI), multilateral institutions (like World Bank, ADB), and small savings schemes (NSSF).

* **Drawing Down Cash Balances:** (Less common for sustained deficits).

Each rupee borrowed to cover the FD adds directly to the outstanding public debt. Therefore, a sustained FD inevitably leads to a rising debt stock.

2. **The Interest Payment Spiral:** Borrowing isn't free. A rising debt stock leads to higher interest payments. These interest payments become a significant component of government expenditure (revenue expenditure). To meet these obligations (alongside other spending), governments often run deficits again, leading to more borrowing, further increasing debt, and consequently, future interest payments. This creates a vicious cycle where past deficits fuel future deficits and debt accumulation.

**Trends in the 21st Century: Evidence of the Link**

1. **Initial Discipline & Then Shocks (Early 2000s):** Post-FRBM Act (2003) discussions, deficits initially showed some consolidation. However, major shocks disrupted this:

* **Global Financial Crisis (2008-09):** The Centre implemented significant stimulus packages (including tax cuts and increased spending), causing the FD to jump from 2.5% (2007-08) to 6.0% (2008-09) and 6.5% (2009-10). Central debt surged accordingly.

* **States followed suit** with their own spending increases, often facilitated by the Centre's relaxation of norms.

2. **Persistent High Deficits (2010s):** Post-crisis consolidation was slow and incomplete. Revenues struggled to keep pace with committed expenditures (salaries, pensions, subsidies) and new welfare schemes. Both Centre and States frequently missed FD targets set under fiscal responsibility legislations.

3. **Major Structural Shocks:**

* **Demonetization (2016):** Disrupted economic activity, impacting tax revenues temporarily.

* **GST Implementation (2017):** While beneficial long-term, caused significant short-term revenue uncertainty and compensation requirements for states, straining both central and state finances.

* **COVID-19 Pandemic (2020-22):** The most significant shock. Massive revenue collapse combined with huge expenditure on health, welfare (free food grains, cash transfers), and economic support pushed the combined FD to **over 13% of GDP in 2020-21**. Central debt soared from around 49% (2019-20) to over 61% (2020-21), while state debts also rose sharply.

4. **Post-Pandemic Challenges:** Despite recovery, deficits remain elevated compared to pre-pandemic levels. High global commodity prices (fuel, fertilizers) post-Ukraine war increased subsidies (food, fertilizer, fuel), keeping expenditure high. Debt levels have stabilized but at significantly higher plateaus than pre-2020.

**Quantifying the Surge (Illustrative Figures - Approx. % of GDP):**

* **Combined FD (Centre + States):** Averaged around 6-8% pre-GFC, spiked to ~13%+ during COVID, now around 8-9%.

* **General Government Debt (Centre + States):** Rose from around 70-75% in early 2000s to 85-90%+ post-COVID (peak ~89-90% in 2020-21), remaining stubbornly high.

**Counterarguments and Nuances**

While the deficit-debt link is primary, other factors have *contributed* to the debt surge:

1. **Interest Payments:** As debt grows, so do mandatory interest payments, consuming a larger share of revenue (often 20-30% for Centre, higher for some states). This *compounds* the problem but originates from past deficits.

2. **Off-Budget Borrowings (OBBs):** Both Centre and States used instruments like Food Corporation of India (FCI) borrowings, power sector schemes (UDAY), or Public Sector Undertaking (PSU) loans to finance expenditures without reflecting them in the official FD. This understated the true deficit and added hidden debt. Recent efforts (like including NSSF fully in FD) aim to reduce OBBs.

3. **Bailouts and Recapitalization:** Central government bailouts of state power distribution companies (Discoms - UDAY, Late Payment Surcharge Scheme) or bank recapitalization added to central liabilities. State guarantees for PSU borrowings also create contingent liabilities.

4. **Low Nominal GDP Growth:** Periods of lower nominal GDP growth (especially high real growth + very low inflation) make it harder to grow out of debt, making existing debt burdens appear larger relative to the economy.

5. **Asset Sales (Disinvestment):** Consistent shortfalls in disinvestment targets meant governments relied more on borrowing than asset monetization to bridge deficits.

**"By and Large" Validated**

Despite these nuances, the primary driver remains the fiscal deficit:

* **Magnitude:** The sheer scale of borrowing required to finance persistent deficits dwarfs the additions from other factors like OBBs or recapitalization *over the long term*.

* **Origin:** Interest payments, the major compounding factor, stem directly from the initial debt accumulated via deficit financing.

* **Persistence:** High deficits weren't just transient shocks (like COVID); they became a structural feature for much of the period, especially post-GFC and post-COVID.

**Consequences of High Debt**

The surge in debt, driven by deficits, has significant implications:

* **Crowding Out:** High government borrowing can push up interest rates, making it costlier for private businesses to invest, potentially hindering growth.

* **Reduced Fiscal Space:** High debt servicing costs leave less room for crucial developmental spending on infrastructure, health, and education.

* **Vulnerability:** High debt makes the economy more vulnerable to external shocks (e.g., global interest rate hikes, currency depreciation).

* **Intergenerational Equity:** Future generations inherit the burden of servicing debt incurred for past consumption.

**Government Response and Challenges**

Efforts have been made:

* **Fiscal Responsibility Legislation (FRBM Acts):** Enacted by Centre and most states, setting targets for deficit and debt reduction. Compliance has been mixed, often waived during crises.

* **GST:** Aims to boost revenues long-term by creating a unified market.

* **Reducing OBBs:** Steps taken to bring more borrowing on-budget.

* **Asset Monetization:** National Monetisation Pipeline (NMP) aims to unlock value from public assets.

However, challenges persist:

* **Structural Revenue Weakness:** Tax-to-GDP ratio remains modest. GST revenue efficiency is still evolving.

* **Rigid Expenditure:** A large share of spending is committed (salaries, pensions, interest, subsidies), leaving little flexibility.

* **Political Economy:** Populist spending before elections and difficulty in withdrawing subsidies.

* **Devolution to States:** While constitutionally mandated, large transfers impact central finances.

**Conclusion**

The evidence overwhelmingly supports the assertion that rising fiscal deficits have been the predominant force behind the surge in public debt for both the Centre and States in India during the 21st century. While factors like interest payments, off-budget borrowing, and economic shocks played contributory or compounding roles, they are either consequences of past deficits (interest) or mechanisms that *enabled* deficit spending without full transparency (OBBs). The persistent nature of high deficits, particularly following major economic shocks like the GFC and COVID-19, directly translated into a significant accumulation of debt. Managing this debt burden requires sustained fiscal consolidation, broadening the tax base, rationalizing subsidies, boosting disinvestment, and improving the quality of public expenditure to foster growth. Breaking the deficit-debt-interest spiral is crucial for India's long-term fiscal health and economic stability.

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**తెలుగు సారాంశం (Telugu Summary):**

**21వ శతాబ్దంలో కేంద్ర, రాష్ట్రాల ప్రభుత్వ ఋణం పెరగడానికి పెరుగుతున్న ద్రవ్య లోటు (Fiscal Deficit - FD) ప్రధాన కారణం.** ద్రవ్య లోటు అంటే ప్రభుత్వం ఖర్చు చేసే మొత్తం కంటే దాని ఆదాయం (రుణాలు మినహా) తక్కువగా ఉండటం. ఈ లోటును పూరించడానికి ప్రభుత్వం రుణాలు తీసుకోవలసి వస్తుంది. ఈ రుణాలే ప్రభుత్వ ఋణాన్ని (Public Debt) పెంచుతాయి.

**ఎలా పనిచేస్తుంది?**

1. **నేరుగా:** ప్రతి సంవత్సరం ఉన్న ద్రవ్య లోటు కొత్త రుణాల ద్వారా నింపబడుతుంది. ఈ కొత్త రుణాలు మొత్తం ఋణ స్టాక్‌లో చేరతాయి.

2. **వడ్డీ స్పైరల్:** ఉన్న ఋణంపై వడ్డీ చెల్లించడం ఒక పెద్ద ఖర్చు. ఈ ఖర్చును కవర్ చేయడానికి మళ్లీ లోటు ఉండవచ్చు, దానికి మళ్లీ రుణాలు... ఇది ఒక దుష్టచక్రం (Vicious Cycle).

**21వ శతాబ్దంలో ఏమి జరిగింది?**

* **2008 ప్రపంచ ఆర్థిక సంక్షోభం:** ప్రభుత్వాలు ప్రోత్సాహక ప్యాకేజీలు ఇచ్చాయి, ద్రవ్య లోటు పెరిగింది, ఋణం పెరిగింది.

* **2010లు:** లోటు ఇంకా ఎక్కువగానే ఉంది. ఆదాయం కంటే ఖర్చు (జీతాలు, పెన్షన్లు, సబ్సిడీలు, సంక్షేమ పథకాలు) ఎక్కువ.

* **2016 నోటీసు రద్దు, 2017 జిఎస్టీ:** స్వల్పకాలిక ఆదాయ తగ్గుదలకు కారణమయ్యాయి.

* **కోవిడ్-19 (2020-22):** పెద్ద షాక్! ఆదాయం కుప్పకూలింది, ఆరోగ్యం & సహాయం కోసం ఖర్చు పెరిగింది. **ద్రవ్య లోటు 13% GDP కి పైకి వెళ్లింది.** కేంద్ర & రాష్ట్ర ఋణం గణనీయంగా పెరిగింది.

* **కోవిడ్ తర్వాత:** లోటు కొంత తగ్గినా, కోవిడ్ ముందు కంటే ఎక్కువే. ఇంధనం, ఎరువుల ధరలు పెరిగి సబ్సిడీ ఖర్చు ఎక్కువైంది. ఋణం అధిక స్థాయిలోనే ఉంది.

**ఇతర కారణాలు (కానీ ప్రధానమైనవి కావు):**

* **వడ్డీ చెల్లింపులు:** పెరిగిన ఋణంపై వడ్డీ ఖర్చు ఎక్కువ. ఇది లోటును మరింత పెంచుతుంది (కానీ మూలం గత లోటే).

* **బడ్జెట్ బయట రుణాలు (Off-Budget Borrowings):** ఫుడ్ కార్పొరేషన్ ఆఫ్ ఇండియా (FCI) రుణాలు, UDAY వంటివి. వాస్తవ లోటును దాచి, దాచిన ఋణాన్ని పెంచాయి.

* **బెయిల్ అవుట్లు:** బ్యాంకులకు, విద్యుత్ సంస్థలకు సహాయం ఇవ్వడం వల్ల కేంద్ర ఋణం పెరిగింది.

* **తక్కువ నామమాత్రపు GDP వృద్ధి:** ఆర్థిక వృద్ధి నెమ్మదిగా ఉండటం వల్ల ఋణాన్ని తగ్గించడం కష్టమైంది.

**ఎందుకు "మొత్తం మీద" (By and Large)?**

* **పరిమాణం:** లోటు నింపడానికి తీసుకునే రుణాల పరిమాణం ఇతర కారణాల వల్ల కలిగే ఋణం కంటే చాలా ఎక్కువ.

* **మూలం:** వడ్డీ సమస్యకు కారణం మునుపటి లోటు వల్ల కూడబెట్టిన ఋణమే.

* **నిరంతరత:** ఎక్కువ ద్రవ్య లోటు కేవలం కొన్ని సంవత్సరాల సమస్య కాదు, ఈ శతాబ్దంలో చాలా కాలం నిరంతరంగా ఉన్న లక్షణం.

**పరిణామాలు:**

* ప్రభుత్వ రుణాలు వడ్డీ రేట్లు పెంచి, ప్రైవేటు పెట్టుబడిని నిరుత్సాహపరుస్తాయి (Crowding Out).

* ఋణం మీద వడ్డీ చెల్లించడంలో చాలా డబ్బు ఖర్చవుతుంది, అభివృద్ధి ఖర్చులకు (ఇన్ఫ్రాస్ట్రక్చర్, విద్య, ఆరోగ్యం) తక్కువ డబ్బు మిగులుతుంది.

* భవిష్యత్ తరాలపై భారం.

**ముగింపు:** కేంద్ర, రాష్ట్ర ప్రభుత్వాల ఋణం పెరగడానికి 21వ శతాబ్దంలో పెరుగుతున్న ద్రవ్య లోటే ప్రధాన కారణమని స్పష్టమవుతుంది. ఇతర కారకాలు కొంతవరకు సహకరించినా, అవి లోటు వల్లే ఉత్పన్నమయ్యాయి లేదా దాన్ని మరింత తీవ్రతరం చేశాయి. ఈ ఋణ భారాన్ని నిర్వహించడానికి ద్రవ్య సమీకరణం (Fiscal Consolidation), పన్ను ఆధారం విస్తరించడం, సబ్సిడీలను హేతుబద్ధీకరించడం, ప్రభుత్వ సంస్థల విక్రయం (Disinvestment) & ప్రభుత్వ ఖర్చు నాణ్యత పెంచడం చాలా అవసరం.

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**Thinking Process & Tricks to Remember (Telugu & English):**

**1. Question Deconstruction (ప్రశ్న విశ్లేషణ):**

* *Core Argument:* FD ↑ = Main Cause → Public Debt ↑ (Centre + States)

* *Timeframe:* 21st Century (2000-Present)

* *Keywords:* "By and large" (mostly true, but not solely), "Responsible", "Surge".

* *Task:* Examine = Present facts, show link, discuss other factors, conclude validity.

**2. Core Concept Linkage (కోర్ కాన్సెప్ట్ లింకేజ్):**

* **Fundamental Equation:** **Public Debt (t) = Public Debt (t-1) + Fiscal Deficit (t) + Other Adjustments (like OBBs).** FD is the *primary annual addition*.

* **Visual Trick (English):** Imagine a **Water Tank (Debt)**. The **Tap (FD)** fills it. **Leaks (Interest Payments)** make you open the tap more to maintain level, filling it faster. **Hidden Pipes (OBBs)** also add water unseen.

* **Visual Trick (Telugu):** **ఋణం = ఒక కుండ (Debt). ద్రవ్య లోటు = కుళాయి (FD Tap).** కుళాయి తెరిచినకొద్దీ కుండ నీటితో నిండుతుంది. **వడ్డీ = చిందు (Leak).** చిందు వల్ల నీరు కొరతవుతుంది, మరింత నీరు (రుణం) పోయాల్సి వస్తుంది. **బడ్జెట్ బయట రుణాలు = దాచిన గొట్టం (Hidden Pipe)** కూడా నీరు పోస్తుంది.

**3. Key Drivers & Events (కీ డ్రైవర్స్ & ఈవెంట్స్):**

* **Acronym (English):** **"FISCAL SHOCKS"**

* **F** - FRBM (Attempts & Failures)

* **I** - Interest Payments Spiral

* **S** - Subsidies & Welfare Schemes (Rigid Expenditure)

* **C** - COVID-19 (Massive FD Spike)

* **A** - Asset Sales Shortfall (Disinvestment)

* **L** - Low Revenue Growth (Tax/GDP)

* **S** - States' Fiscal Issues (Power Discoms, Populism)

* **H** - Hidden Borrowings (OBBs - FCI, UDAY etc.)

* **O** - Oil/Commodity Price Spikes (Subsidy Impact)

* **C** - GFC (Global Financial Crisis 2008)

* **K** - Key Reforms (GST - Short-term disruption)

* **S** - Structural Expenditure (Salaries, Pensions)

* **Phrase Trick (Telugu):** **"లోటు తో ఋణం, షాక్ తో పెరిగేది; సబ్సిడీ, పెన్షన్ ఖర్చు ఎక్కువ; వడ్డీ తో సమస్య పెరిగేది; బడ్జెట్ బయట రుణాలూ కలిసేది."**

**4. Remembering Nuances (సూక్ష్మ అంశాలు గుర్తుంచుకోవడం):**

* **"By and Large" Means:** FD is King, but Interest is the Crown Prince, OBBs are the Shadow Advisor. Interest stems *from* FD debt. OBBs *enable* FD spending.

* **Trick (English):** **"FD is the DEBTor"** (FD Creates Debt, Debt Causes Interest, Interest worsens FD).

* **Trick (Telugu):** **"ద్రవ్య లోటు (FD) - రుణానికి (Debt) తల్లి; వడ్డీ (Interest) - కూతురు; బడ్జెట్ బయట రుణాలు (OBBs) - దాచిన బంధువు."**

**5. Concluding the Argument (ముగింపు):**

* Data shows FD spikes (GFC, COVID) → Immediate Debt jumps.

* Persistent FD → Persistent Debt accumulation.

* Other factors are satellites orbiting the FD planet. They matter, but FD is the gravitational center.

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**30 Examples Regarding Rising FD & Public Debt (India, 21st Century):**

1. **2008-09 FD Spike (6.0%):** Centre's stimulus post-GFC directly increased borrowing and debt.

2. **2009-10 FD Spike (6.5%):** Continued stimulus further inflated Central debt.

3. **COVID-19 FD Surge (2020-21 ~9.5% Centre alone):** Unprecedented borrowing led Central debt to jump from ~49% to ~61% GDP.

4. **State FD during COVID:** Many states saw FD breach 4% limit, pushing state debt ratios up significantly.

5. **UDAY Scheme (2015):** States took over Discom debt (OBB initially), increasing their *explicit* debt burden later.

6. **Food Subsidy via FCI Borrowings:** Long-standing practice where FCI borrowed (OBB) to cover procurement costs, adding hidden liabilities eventually borne by Centre.

7. **Fertilizer Subsidy Burden:** Fluctuating global prices lead to unpredictable FD pressures (e.g., post-Ukraine war).

8. **Fuel Subsidy Volatility:** When global oil prices rise but retail prices aren't fully passed on (e.g., 2022), subsidies swell, impacting FD.

9. **MNREGA Expenditure:** While crucial, large outlays contribute to FD, especially during droughts/slowdowns.

10. **National Rural Health Mission (NRHM) / Ayushman Bharat:** Significant health spending adds to FD if not fully revenue-backed.

11. **Farm Loan Waivers (Various States):** Populist measures directly impact state FD and debt (e.g., UP, Punjab, Rajasthan announcements).

12. **Pay Commission Implementations (6th & 7th):** Large hikes in salaries & pensions for government employees create structural FD pressure for Centre and States.

13. **Post-7th Pay Commission Impact:** States struggling to manage the fiscal burden of matching central pay scales.

14. **GST Compensation Shortfall (2020-22):** Centre had to borrow specifically to compensate states, increasing central FD and debt.

15. **RBI Surplus Transfers:** While helpful, relying on these for revenue masks underlying FD pressure.

16. **Consistent Disinvestment Shortfalls:** Failure to meet targets means greater reliance on borrowing to meet FD targets.

17. **Punjab's Debt Crisis:** Chronically high FD (often >4% pre-COVID) driven by subsidies, freebies, and power sector losses led to unsustainable debt (>45% GSDP).

18. **Kerala's Fiscal Stress:** High revenue expenditure (pensions, salaries) keeps FD elevated, contributing to high debt.

19. **West Bengal's Rising Debt:** Increased welfare spending and infrastructure push contributing to FD and debt accumulation.

20. **Centre's Debt Servicing Cost:** Interest payments now consume ~25% of revenue receipts, limiting other spending and necessitating borrowing if revenues dip.

21. **State Interest Burden (e.g., Punjab, Rajasthan):** High debt leads to high interest costs (sometimes 20-30% of revenue), consuming funds needed for development.

22. **NSFDC/SJVN etc., Borrowings for Schemes:** Using PSUs to borrow for government schemes (OBB) adds contingent liabilities.

23. **Bank Recapitalization Bonds (2017 onwards):** Issued by Centre to recapitalize PSBs, adding to Central debt.

24. **Impact of Low Inflation (e.g., 2014-17):** Low nominal GDP growth made debt reduction harder, making existing FD-driven debt burdens appear larger.

25. **FRBM Target Breaches (Multiple Years):** Both Centre and States frequently missing their own FD targets indicates persistent pressure.

26. **Pre-Election Spending Splurges:** Often observed at both levels, temporarily worsening FD.

27. **Post-COVID Revenue Recovery Lag:** Expenditure remained high while revenues took time to recover, keeping FD elevated.

28. **Pandemic-induced State GST Shortfall:** Reduced own tax revenues forced states to borrow more, increasing FD and debt.

29. **Increased Capex Push (Recent):** While good for growth, higher capital expenditure by Centre contributes to FD if not matched by revenue gains or disinvestment.

30. **LPG Subsidy Re-introduction (Ujjwala):** Targeted subsidies, while beneficial, add to expenditure and FD pressure when global prices surge.

IamAJober

Tuesday, July 15, 2025