Fiscal Deficit

Fiscal Deficit

Subject: Economy

Context: The Finance Ministry on Friday reported a fiscal deficit of 18.2 per cent of the Budget Estimate (BE) for the April-June quarter, the lowest since 2010-11

Concept:

• The government describes fiscal deficit of India as “the excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year”.
• The government that has a fiscal deficit is spending beyond its means.
• It is calculated as a percentage of Gross Domestic Product (GDP), or simply as total money spent in excess of income.
• In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.
• The government has set a fiscal deficit target of ₹15.06- lakh crore (6.8 per cent of GDP) for FY22. Achieving this will depend upon two things: Actual disinvestment proceeds and expenditure on possible stimulus
• Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts)..
• It is different from revenue deficit which is only related to revenue expenditure and revenue receipts of the government.
• The government meets the fiscal deficit by borrowing money. In a way, the total borrowing requirements of the government in a financial year is equal to the fiscal deficit in that year.
• A high fiscal deficit can also be good for the economy if the money spent goes into the creation of productive assets like highways, roads, ports and airports that boost economic growth and result in job creation.
• The Fiscal Responsibility and Budget Management Act, 2003 provides that the Centre should take appropriate measures to limit the fiscal deficit upto 3% of the GDP by 31st March, 2021.