In 2022-23, in accordance with the recommendation of the 15th Finance Commission, the states will be allowed a fiscal deficit of _______ of GSDP of which 0.5% will be tied to power sector reforms.

Correct option is D

The 15th Finance Commission recommended that for the financial year 2022-23, states should be allowed a fiscal deficit limit of 3.5% of GSDP. This limit includes an additional 0.5% flexibility tied to implementing specific reforms in the power sector, such as improving DISCOM efficiency and reducing Aggregate Technical and Commercial (AT&C) losses.

Information Booster:

1. Fiscal Deficit is the difference between a state's total revenue and total expenditure.
2. The additional 0.5% of GSDP is contingent upon states meeting predefined milestones in the power sector.
3. The recommendation helps states maintain fiscal discipline while incentivizing structural reforms.
4. For 2021-22, the fiscal deficit limit was set at 4% of GSDP.
5. From 2023-26, the fiscal deficit limit is recommended to reduce to 3% of GSDP, ensuring long-term sustainability.
6. These recommendations align with the broader goal of reducing India’s combined fiscal deficit.

Additional Knowledge:

• 4% of GSDP: Allowed for 2021-22 due to post-COVID recovery needs.
• 5%: Not recommended in any fiscal year under the 15th Finance Commission report.
• 4.5%: Was considered during pandemic years as an exception.
• 3.5%: Applicable for 2022-23 with tied reforms in power distribution.