What is the fiscal cliff?
Big events set to occur by 2012-end
The expiration of tax cuts initiated by former US President George W Bush, including current lower tax rates on capital gains, dividends, income, and estates
The expiration of stimulus measures like payroll tax cuts and extended unemployment benefits
Spending cuts scheduled to be triggered automatically in January
Impact on India
A major downside risk to global growth is now looming from the US ‘fiscal cliff’. The US Congressional Budget Office forecasts that the country’s fiscal deficit will decline by 3.3 percentage points to 4 per cent of GDP in 2013. However, such a sharp fiscal consolidation may have a deleterious impact on global growth. If demand in the US falls, it would spillover globally, impacting India’s exports, and the growth prospects. If global growth slumps, and imports remain at current levels, it will impact the current account, which may be offset if global commodity prices fall.
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