What Is Fiscal Deficit?

While presenting the Budget 2024-25 on July 23, 2024, Union Minister of Finance Nirmala Sitharaman said the fiscal deficit was at 4.9 per cent of the gross domestic product (GDP), down from 5.6 per cent announced in the interim budget. Fiscal deficit refers to the difference between the government’s income and expenditure for the year. Let’s find out more about it.

Union Minister of Finance Nirmala Sitharaman presented Modi 3.0’s first Union Budget on July 23, 2024. The Budget pegged the fiscal deficit at 4.9 per cent of the gross domestic product (GDP), down from 5.6 per cent announced in the interim budget. During the Budget, the FM said, “For the year 2024-25, the total receipts other than borrowings and the total expenditure are estimated at Rs 32.07 lakh crore and Rs 48.21 lakh crore, respectively. The fiscal deficit is estimated at 4.9 per cent of GDP.” Fiscal deficit refers to the difference between the government’s income and expenditure for the year. Let’s find out more about it.

What is Fiscal Deficit?

• Fiscal deficit happens when a government spends more than it collects in taxes and other income in a year. This gap is financed by borrowing, which may come from issuing bonds or taking loans.
• It is the total expenditure minus total revenue in which the expenditure includes revenue expenditure (salaries, pensions, subsidy, others) and capital expenditure (infrastructure and social programs, and so on).
• Revenue includes tax revenue (direct and indirect), non-tax revenue, and other receipts such as sale of assets.
• The major causes of fiscal deficit include higher spending by the government, economic downturn and inefficient tax collection.

Is it Good or bad?

• Economic downturns can be tackled by increased government spending on infrastructure or social programs. In such situations, a larger fiscal deficit is not considered bad.
• It is also good when governments fund long-term investments in sectors like education, healthcare, infrastructure, which are expected to improve productivity and economic growth in the long term.
• However, when fiscal deficit is consistently high, it may lead to rise in national debt, discouraging private investment.
• Governments try to tackle deficits by printing more money, which can cause inflation that in turn will erode the purchasing power. of citizens.

India’s report card

• In the last five years, India’s fiscal deficit hovered between a minimum of 4.6 per cent of the GDP in 2019-20 to a maximum of 9.2 per cent in 2020-21.
• A stable global and domestic scenario saw India’s fiscal deficit stabilise at 3-4 per cent between 2015 and 2019.
• It has now recovered to 4.9 per cent, down from 5.6 per cent announced in the Interim Budget.
• The government is seeking fiscal consolidation since 2021, and it aims to take the deficit to below 4.5 per cent next year.
• From 2026-27 onwards, India will strive to reduce the deficit each year by lowering the debt, according to the Budget.