Fiscal Deficit

Fiscal Deficit

Fiscal Deficit:

#GS III #Indian Economy

Topic Indian Economy


The definition of a fiscal deficit is:

The fiscal deficit is the difference between all of the government’s expenditures and all of its receipts (excluding borrowing). A fiscal imbalance occurs when this expense outweighs the money received.

When a government’s overall spending exceeds its revenue, there is a fiscal deficit (excluding money from borrowings).

The deficit is not the same as the debt, which is an accumulation of annual deficits.

The fiscal deficit is a sign of how the government manages its finances.

An ongoing large budget deficit indicates excessive government spending.

The fiscal deficit is prevalent in almost every economy, whereas the budgetary surplus is relatively rare. If the money is used to construct infrastructure, such as roads, airports, and other things that will eventually bring in money, the enormous budget deficit is not always a negative thing.

Governments (at the national and sub-national levels) employ fiscal consolidation programmes to lower their deficits and debt accumulation.

How the fiscal deficit is covered: 

Two sources are used to pay for the budgetary deficit. They are the following:

obtaining loans from a commercial bank or other sources like the IMF, other governments, etc.

Creating new money through deficit financing entails borrowing funds from the RBI in exchange for its securities (so, RBI prints new currency).

Since borrowing is used to cover the fiscal deficit, it may be claimed that a government’s entire borrowing requirements for a year are equal to the fiscal deficit for that year.

India’s fiscal policy framework:

Important information regarding India’s fiscal policy strategy includes the following:

A Finance Commission (FC) must be constituted every five years, under the Indian Constitution.

In light of the fact that the states’ taxation authority may not always be adequate in relation to their spending responsibilities, this will serve as the basis for transferring a portion of the center’s income to the state governments and give medium-term fiscal guidance.

The Union Budget, which the government must submit to the Parliament for approval and discussion of its proposed taxing and spending initiatives, is another aspect of fiscal policy.

The Fiscal Responsibility and Budget Management Act (FRBM) 2003 is a statute that addresses economic constraint.

Source The  Hindu