Fiscal Deficit from Vajirao & Reddy Institute

Fiscal Deficit

• According to the India Ratings and Research India’s fiscal deficit may breach the 5.9% of GDP target for this year and could hit 6% which is due to the estimate of revenue spending exceeding the Budget Estimate by nearly ?2 lakh crore.

• This is despite being tax collections have been buoyant which may offset a wide shortfall in disinvestment outcomes.
• It is also being informed that the Centre has recently secured the parliamentary approval for the first supplementary demand for grants this year.
• In the supplementary demand for grants, the government have sought more funds for priority areas which are food, fertilizer, and LPG subsidy.
• Besides that, the government had also sought more funds for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in the same supplementary demand for grants.
• One of the major reason for the increased expenditure this year is due to the higher expenditure by a few select Ministries.
• Other main reason is due to the recouping of over ?28,000 crore in to the Contingency Fund of India which was drawn by about 30 departments as an advance in the past.

• Fiscal deficit can be described as the difference between total revenue and total expenditure of the government.
• It is usually an indication of the total borrowings required by the government.
• It is important to note that while calculating the total revenue, borrowings are not included.
• Fiscal Deficit can be computed at two levels which are gross fiscal deficit and net fiscal deficit.
• The gross fiscal deficit (GFD) is defined as the excess of total expenditure which include loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts.
• The net fiscal deficit is the gross fiscal deficit minus net lending by the Central government.
• Fiscal deficit in general takes place either due to revenue deficit or a due to major hike in capital expenditure.
• A hike in capital expenditure is considered healthy as capital expenditure is incurred to create long-term assets such as factories, buildings and other development.