Definition
Fiscal Consolidation
Fiscal consolidation is the process of reducing the government's fiscal deficit and debt over time through higher revenues or lower spending growth.
After periods of heavy borrowing — such as the pandemic stimulus — Indian Budgets typically lay out a fiscal consolidation glide path, a multi-year plan to bring the fiscal deficit back down as a share of GDP. The aim is to reassure markets and rating agencies that debt is on a sustainable trajectory.
Consolidation can be achieved by widening the tax base, improving compliance, restraining the growth of subsidies, or boosting nominal GDP so the deficit shrinks as a ratio. Cutting spending too sharply, however, can hurt growth, so the pace is usually gradual and weighted toward protecting capital expenditure.
Related terms
- FRBM ActThe Fiscal Responsibility and Budget Management Act is the law that commits the central government to fiscal discipline by setting targets for deficits and public debt.
- Capex PushA capex push is a deliberate budgetary strategy of sharply increasing government capital expenditure on infrastructure to spur growth and attract private investment.
- Fiscal DeficitThe fiscal deficit is the gap between the government's total spending and its total revenue, showing how much it must borrow in a year.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.