Overview of Fiscal Deficit

No matter how hard to reach to revenue collection is, the Government must loosen its privy purse to uplift the country. When it spending is more than its earnings, there arises a Fiscal Deficit. But is it that bad?

The beginning of the second month of every year is long-awaited. You must be thinking why?  Naturally, the budget presentation. The Central Government presents the Union Budget of India on the 1st of February every year,. Besides others, this budget mainly involves three terms: public revenue, public expenditure, and fiscal deficit. The first two terms are pretty self-explanatory. But the third one is an important one to understand.

So today, let’s plunge into the topic of fd and clear up any myths that you might have.

What is a Fiscal Deficit?

The Government depicts the fiscal deficit of India as “the surfeit of total disbursements from the Consolidated Fund of India, excluding payback of the debt, over total receipts into the Fund during a financial year”.

In easy words, a fiscal deficit means a insufficiency of public or Government revenue with respect to the expenditure.

In general practice fiscal deficit, is disclosed as a percentage of Gross Domestic Product (GDP).

 

How to calculate fiscal deficit?

This is calculated by deducting the total expenditure from the total revenue of the Government:

Fiscal deficit(FD) = Total expenditure – Total receipts (excluding borrowings receipts)

Okay, you must ask, why exclude borrowings? Well, however borrowing is a receipt, it is not a source of revenue that is earned. It is more of a liability that needs reimbursement. Hence, to determine an accurate rate of fiscal deficit, borrowings are excluded from the public revenue.

 

Final terms

The fiscal deficit of a country is a major criteria to decide the soundness of the economy. It is pivotal to maintain the deficit along the safe border; else, the country might have to face long term consequences.

India has managed not to diverge much from the ideal limit in the past decade. But the pandemic changed the status fiscal deficit in India and other countries too. While the budgeted fiscal deficit was around 3.5% of the GDP, in reality, it came out to be almost thrice ~ 9.3%!

Probably, the FD for 2021-22 is also estimated to be quite high! Let’s just hope that the Government will turn about a corner with its vaccination drive.

 

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