Discuss the role of the Economic Stabilisation Fund in enhancing India's resilience to global economic shocks. How does it contribute to maintaining fiscal discipline in challenging times?

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INTRODUCTION

The Economic Stabilisation Fund (ESF) was established by the Government of India in 2015–16 to manage surplus transfers from the Reserve Bank of India (RBI).
It functions as a financial buffer to address unexpected fiscal pressures and global economic shocks.

ROLE OF ECONOMIC STABILISATION FUND IN ENHANCING RESILIENCE TO GLOBAL ECONOMIC SHOCKS

Shock Absorption Mechanism

Provides a reserve pool of funds that can be utilised during global financial crises, commodity price shocks, or economic downturns.

Stabilising Government Finances

Helps offset revenue shortfalls caused by external economic disruptions such as global recession or trade slowdown.

Reducing Dependence on Borrowing

Enables the government to use accumulated reserves instead of excessive borrowing, thereby preventing a rise in fiscal deficit and public debt.

Ensuring Continuity of Public Expenditure

Supports continued spending on welfare schemes, infrastructure, and development programmes even during periods of economic stress.

Enhancing Macroeconomic Credibility

Strengthens investor confidence and financial stability by demonstrating the government's preparedness to manage external shocks.

CONTRIBUTION TO MAINTAINING FISCAL DISCIPLINE

Management of Windfall Revenues

Surplus transfers from RBI are parked in the ESF instead of being immediately spent, preventing fiscal expansion based on temporary revenues.

Promoting Counter-Cyclical Fiscal Policy

Encourages saving during favourable economic conditions and spending during downturns, ensuring balanced fiscal management.

Preventing Ad-hoc Fiscal Decisions

Provides a structured mechanism for handling unexpected revenues, reducing the scope for discretionary or populist expenditure.

Supporting Fiscal Responsibility Framework

Complements the Fiscal Responsibility and Budget Management (FRBM) framework by promoting prudent management of government finances.

CONCLUSION

The Economic Stabilisation Fund strengthens India’s capacity to manage global economic volatility while maintaining fiscal prudence and macroeconomic stability.

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