MAINS Current Affairs includes Fiscal Policy Planning: Need for a Clearer Medium-Term Strategy & A START for Multilateralism: The Need for a Global Nuclear Treaty

Economy

1. Fiscal Policy Planning: Need for a Clearer Medium-Term Strategy

Context: In the Union Budget 2026–27, the government has shifted its fiscal focus toward the debt-to-GDP ratio, moving away from the earlier emphasis on the annual fiscal deficit alone.

About Fiscal Policy

• Fiscal policy refers to the government’s use of taxation, non-tax income, public spending, borrowing, and debt management to steer the economy.
• Its goal is to combine developmental priorities—such as health, education, and infrastructure—with long-term fiscal sustainability.
• Fiscal operations are mainly outlined in the Annual Financial Statement (Union Budget) under Article 112 of the Constitution.
• A major indicator of fiscal health is the fiscal deficit, which determines how much the government must borrow and how public debt evolves.

Current Fiscal Position & Future Goals

Fiscal Deficit & Debt

• Fiscal deficit has fallen from 2% of GDP in 2020–21 to 4.4% in 2025–26.
• Target for 2026–27: 3% of GDP.
• Central government debt is estimated to decline from 1% (2025–26) to 55.6% (2026–27).

Growth Outlook

• As per the Economic Survey 2025–26:
  • FY 2025–26 GDP growth is estimated at 4%, among the highest globally.
  • FY 2026–27 growth projected at 8–7.2%, reflecting macroeconomic resilience.

Revenue & Expenditure Trends

• Tax revenues remain the principal revenue source, with ongoing steps to raise buoyancy.
• Non-tax receipts, particularly RBI dividends and PSU surpluses, are projected to increase, giving extra fiscal room.
• Capital expenditure is prioritised, rising to a historic ₹12.2 lakh crore in 2026–27 for infrastructure and growth-led projects.

Major Concerns

High Debt Even After Consolidation

• Even if the Centre brings its debt down to around 50% of GDP by 2030–31, it will stay above earlier targets.
• The original FRBM mandate required central debt to fall to 40% of GDP by 2025, leaving a long-term gap of nearly 10 percentage points.

Limited Near-Term Ambition

• Robust growth suggests room for faster consolidation, but upcoming pressures—such as the Eighth Pay Commission and a general election before 2030–31—reduce the government’s flexibility.

General Government Debt Risks

• With state debt expected to rise further, overall (Centre + States) public debt may remain close to 80% of GDP, offsetting potential improvements at the central level.

Key Policy Measures & Reforms

Union Budget 2026–27 Approach

• Fiscal planning is built on three pillars:
  1. Growth acceleration
  2. Citizen aspirations
  3. Fiscal stability and sustainability

Higher Capital Expenditure

• Significant push toward:
  • Roads, railways, ports
  • Urban and rural infrastructure
  • Green logistics corridors
• These investments strengthen supply-side capacity and support employment generation.

Sectoral Support

• Targeted assistance to manufacturing, semiconductors, electronics, biopharma, and critical minerals to enhance productivity and reduce dependence on imports.

MSME & Enterprise Support

• Increased credit and liquidity measures to boost MSME growth and employment.

Structural Reforms

• Regulatory simplification and reduced compliance burdens.
• Labour reforms and skilling initiatives to raise productivity and promote formal employment.

State-Level Fiscal Monitoring

• NITI Aayog’s Fiscal Health Index evaluates states on tax capacity, debt sustainability, and spending quality—strengthening fiscal discipline across states.

Other Strategic Steps

• Focus on the debt-to-GDP ratio instead of only the fiscal deficit.
• Gradual, non-disruptive fiscal consolidation.
• Better quality of spending to support long-term growth.
• Signalling adherence to a medium-term fiscal discipline

Way Forward

• Achieve a primary surplus: Even a marginal primary surplus would help bring debt down faster.
• Maintain strong nominal GDP growth: Keeping growth higher than interest rates is critical for favourable debt dynamics.
• Coordinate Centre–State fiscal consolidation: A joint framework is needed for reducing overall public debt.
• Manage financing constraints: With household financial savings hovering near 6% of GDP, excessive government borrowing may crowd out private investment.
• Adopt a medium-term fiscal framework: A transparent roadmap for general government finances would enhance credibility and improve market confidence beyond annual budgets.

International

2. A START for Multilateralism: The Need for a Global Nuclear Treaty

Context

With the lapse of the New START Treaty, the last surviving nuclear arms-control pact between the United States and Russia, global anxieties over nuclear security have intensified. Many fear the world is drifting toward an unrestrained arms race.

Rising Global Threat Perceptions

1. Changing Security Environment

• As geopolitical rivalry deepens, global threat perceptions have grown sharply.
• The erosion of the post–Cold War security architecture has accelerated mistrust and militarisation.
• Long-standing arms-control norms are weakening amid intensified strategic competition.

2. Return of Power Politics

• Growing irredentism, territorial ambitions, and aggressive nationalism shape state behaviour.
• Coercive military tactics are replacing diplomatic engagement.
• Renewed great-power rivalry has made both direct and proxy conflicts more plausible.

3. Expanding Nuclear Risks

• The dismantling of key treaties has heightened existential anxieties.
• Nuclear-armed states—including the US, Russia, China, Israel, and Pakistan—are upgrading their arsenals.
• Reduced transparency and weakened confidence-building measures increase chances of miscalculation.

4. Regional Flashpoints

• West Asia: shifting alignments, latent nuclear ambitions.
• Eastern Europe: war, border disputes, large-scale military escalation.
• East Asia: heightened deterrence competition and rapid modernisation.

New START Treaty: Background

• START-I (1991): Between the US and USSR; enforced in 1994; limited arsenals to 6,000 warheads and 1,600 ICBMs; ended in 2009.
• SORT (Treaty of Moscow): Replaced START-I.
• New START (2010, in force 2011):
  • Caps deployed strategic warheads at 1,550 per side.
  • Limits deployed missiles and bombers to 700 and total launchers to 800.

Impact of New START’s Expiry

• Removes the last bilateral check on the two largest nuclear powers, who hold nearly 90% of nuclear weapons.
• Both nations are pursuing aggressive modernisation, likely speeding up warhead deployment.
• Absence of verification enlarges uncertainty and instability.

A Growing Nuclear Landscape

• SIPRI (2025): 9 nuclear states possess 12,241 warheads, with 9,614 in military stockpiles.
• India now exceeds Pakistan with ~180 warheads.
• China, with ~600 warheads, is the fastest-expanding nuclear state and may reach US–Russia parity by decade’s end.
• Any future arms-control deal excluding China will be ineffective.

Why Multilateral Disarmament is Needed

1. NPT’s Relevance

• The Non-Proliferation Treaty still legally binds 191 states to pursue disarmament.
• The upcoming NPT Review Conference offers a critical opportunity for renewed momentum.

2. Rising Regional Nuclear Interest

• West Asia, Eastern Europe, and East Asia show heightened nuclear appetite, making bilateral frameworks obsolete.

3. Nuclear Weapons Don’t Guarantee Peace

• Deterrence has not prevented low-intensity conflicts—e.g., India–Pakistan skirmishes.
• Nuclear weapons amplify risks of catastrophic escalation, especially under nationalist leadership.

4. Role of TPNW (2017)

• The Treaty on the Prohibition of Nuclear Weapons is the only complete ban on nuclear weapons.
• Signed by ~100 nations, 70 ratified, but no nuclear state is part of it.
• Provides essential legal and normative pressure.

Way Forward: Building a New Global Arms-Control Framework

1. Go Beyond US–Russia

• Include China formally, with phased integration of other nuclear states.
• Adopt differentiated obligations considering varied arsenal sizes.

2. Prioritise Risk Reduction First

• Immediate disarmament is unrealistic; focus on:
  • De-alerting missiles
  • No-first-use pledges
  • Clear nuclear doctrines
  • Hotline communication
• Create nuclear risk-reduction centres (e.g., NATO–Russia, India–Pakistan, US–China).

3. Enhanced Verification

• Use AI, satellites, and remote sensing for monitoring.
• Establish a UN/IAEA-backed multilateral verification body.
• Allow managed-access inspections.

4. Link Arms Control With Regional Security Dialogues

• East Asia: tie talks to Taiwan Straits and Korean Peninsula stability.
• South Asia: mix nuclear CBMs with conventional force restraint.
• West Asia: revive WMD-free zone discussions.

5. Address Emerging Technologies

• Include hypersonic missiles, cyber intrusion, AI-enabled command systems, and space assets.
• Prevent overlap between nuclear and advanced conventional systems.

6. Depoliticise Institutions

• Shield arms-control talks from day-to-day geopolitics.
• Encourage Track-II and Track-1.5 forums with scientists and strategists.
• Treat arms control as a technical security exercise, not geopolitical leverage.

7. Rebuild Strategic Trust Gradually

• Start with incremental, verifiable measures.
• Restore past transparency tools used in New START.
• Institutionalise regular dialogue among nuclear powers—not just crisis-driven interaction.

Conclusion

The expiration of the New START Treaty is a stark reminder of the fragility of global nuclear restraint. The world now faces a choice: drift toward a destabilising arms race or push for a multilateral, inclusive, and enforceable disarmament architecture. Achieving a real “fresh start” will require leadership from major nuclear powers and collective international pressure to ensure nuclear weapons do not shape the future of global security.

Download Pdf | Study Material | Downloads | Daily Quiz  | FREE Youtube Videos