Fiscal Policy Tools — Current Affairs 2026

Current Affairs Connections

Recent developments and news linked to Fiscal Policy Tools.

India's Green Fiscal Initiatives: Sovereign Green Bonds and EV Promotion

Throughout 2024-2025

In line with global climate commitments, India has been actively integrating 'green' elements into its fiscal policy. The issuance of Sovereign Green Bonds in 2024-25, following successful tranches in previous years, is a significant step towards financing environmentally sustainable projects. These bonds attract capital for green infrastructure, renewable energy, and climate adaptation. Furthermore, fiscal incentives for electric vehicles (EVs) through schemes like FAME-II (Faster Adoption and Manufacturing of Electric Vehicles) and reduced GST rates on EVs and chargers continue to be a focus. These measures exemplify how fiscal policy tools (borrowing, subsidies, tax incentives) are being strategically deployed to achieve environmental objectives alongside economic growth, marking a shift towards 'climate fiscal policy'.

UPSC Angle: Examine the concept of 'green fiscal policy' and its instruments. Discuss the effectiveness of green bonds and EV subsidies in achieving climate goals and fostering a sustainable economy. Analyze the role of fiscal policy in India's energy transition and climate action.

Global Minimum Tax (Pillar Two) and India's Digital Taxation Strategy

Ongoing discussions and implementation in 2024-2026

India continues to navigate the complexities of international digital taxation, particularly in light of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) 2.0, which includes a global minimum corporate tax (Pillar Two). While India has its own Equalisation Levy (EL) for digital services, the global consensus framework requires adjustments and strategic alignment. The government's fiscal policy is evolving to ensure fair taxation of multinational enterprises in the digital age, balancing domestic revenue needs with international tax cooperation. This involves reviewing existing digital tax measures and potentially adopting new fiscal tools to capture value generated by the digital economy, a critical challenge for revenue mobilization in the 21st century.

UPSC Angle: Discuss the challenges and opportunities of taxing the digital economy. Analyze India's Equalisation Levy in the context of global minimum tax proposals. Evaluate how international tax cooperation influences domestic fiscal policy tools and revenue generation.

Background (2024)

Earlier events that provide context for this topic.

Union Budget 2024-25: Continued Capex Push and Fiscal Consolidation Path

February 1, 2024

The Interim Union Budget 2024-25, presented by the Finance Minister, reiterated the government's commitment to boosting capital expenditure (capex) as a primary growth driver, allocating a significant portion towards infrastructure development. This aligns with the long-term fiscal strategy to crowd in private investment and enhance productive capacity. Simultaneously, the budget outlined a clear roadmap for fiscal consolidation, targeting a fiscal deficit of 5.1% of GDP for FY2025-26, down from 5.8% (RE) in FY2023-24. This demonstrates the government's balancing act between growth stimulus and fiscal prudence, a key aspect of effective fiscal policy. From a UPSC perspective, this highlights the ongoing emphasis on quality of expenditure and adherence to fiscal responsibility norms.

UPSC Angle: Analysis of the budget's capital expenditure allocation, its potential multiplier effect on the economy, and the credibility of the fiscal consolidation path. Questions can focus on the trade-offs between growth and fiscal prudence, and the role of capex in achieving long-term economic objectives.