Relevance: GS III (Indian Economy & Fiscal Policy) | Source: The Hindu / Business Line

1. What is the News?

The government introduced a massive ₹1 lakh crore Economic Stabilisation Fund (ESF) in the Lok Sabha. This was done through Supplementary Demands for Grants (a request for extra money outside the regular annual Budget).

2. Why is this Fund Needed?

  • Economic Shock-Absorber: It protects the Indian economy from unexpected global crises, such as wars or sudden jumps in crude oil prices.
  • Managing Foreign Money Exit: It acts as a safety net to keep our currency and markets stable if foreign investors (FIIs) suddenly pull their money out of India.
  • Protecting Public Spending: It ensures that money for domestic development (like roads and welfare) is not cut when a global crisis hits.

3. How is it Funded?

  • It is funded largely through internal savings (shifting unspent money from other government departments).
  • Because of this smart reallocation, the government will not cross its strict Fiscal Deficit target for the year.

The “UPSC Trap”

  • The “Deficit” Trap: UPSC might claim that creating such a huge fund automatically increases the Fiscal Deficit. This is incorrect, as the money is arranged from existing savings.
  • The “Constitutional” Trap: Do not confuse the ESF with the Contingency Fund of India. The Contingency Fund is a permanent constitutional setup (Article 267), while the ESF is just a temporary economic policy tool.

UPSC Value Box

Concept / Article Simple Meaning
Supplementary Grants (Article 115) When the money given to a ministry in the annual Budget falls short during the year, they ask Parliament for this “extra” grant.
Fiscal Deficit The total amount of money the government needs to borrow in a year because its expenses are greater than its income.

With reference to India’s fiscal management, consider the following statements:

  1. Supplementary Demands for Grants are presented to the Parliament under Article 115 of the Constitution.
  2. The newly proposed Economic Stabilisation Fund (ESF) is a permanent fund established under Article 266 to absorb global economic shocks.
  3. The authorization of supplementary grants by Parliament automatically leads to a breach of the annual Fiscal Deficit target.

Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2 and 3

Correct Answer: (a)

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