Fiscal deficit: Meaning, history in India, causes, current deficit and more
What is the fiscal deficit? Why does it matter? Let's explore its economic implications in our comprehensive article
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Last Updated: Aug 12, 2024, 16:28 IST3 min
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The fiscal deficit is one of the most important concepts in the dense lexicon of economics. Debates and policy decisions on the budget deficit are common because of the influence it has on a country"s economic growth and stability. If you"re interested in economics, or if you"re a concerned citizen, or especially if you"re a policymaker, knowing what the budget deficit is and why it matters is essential.
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In this article, we"ll start untangling the knots of fiscal deficit to see what it all means. We"ll look back at how India has dealt with this economic problem in the past. We will also understand the many facets of fiscal deficit, from the causes of its expansion to the methods used to reduce it and its consequences for the economy.
What is the fiscal deficit?
Fiscal deficit refers to the amount by which a government"s spending exceeds its revenue in a given fiscal year, leading to increased borrowing and accumulation of debt. It represents the amount of borrowing required by the government to meet its spending obligations when its expenses surpass its income.When a government spends more than it generates through sources like taxes, fees, and other revenue streams, it incurs a fiscal deficit. The deficit is typically financed through borrowing from various sources, such as issuing government bonds or seeking loans from domestic or international entities. Accumulated fiscal deficits contribute to a country"s overall public debt burden.
Fiscal deficits can occur due to several factors, including increased government spending, economic downturns, tax cuts, subsidies, or inefficient revenue collection.
Governments often employ deficit financing to stimulate economic growth, support social welfare programs, or address emergencies. However, prolonged and excessive deficits can lead to concerns about fiscal sustainability, inflation, and high-interest payments on the accumulated debt.
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Managing the fiscal deficit is a critical aspect of fiscal policy, and governments strive to strike a balance between promoting economic growth and maintaining fiscal discipline. The aim is to keep the deficit at a sustainable level while ensuring that public debt remains manageable, allowing the government to meet its financial obligations and maintain economic stability in the long term.
Also Read: Unemployment rate in India (2008 to 2024): Current rate, historical trends and more
India"s current fiscal deficit
According to data released by the Controller General of Accounts (CGA), India"s fiscal deficit for the first quarter of FY25 stood at 8.1 percent, Rs1,35,712 crore in absolute terms. The deficit stood at 25.3 percent of the Budget Estimates in the corresponding period of the financial year 2023-24. In the release, CGA said the net tax revenue was Rs5,49,633 crore or 21.1 percent of the budget estimates for the current fiscal. It was 18.6 percent in the same period last year. Total expenses in the first quarter were at Rs9,69,909 crore or 20.4 percent.At 5.63 percent, India"s fiscal deficit for FY24 was slightly better than the estimated 5.8 percent in the interim Union Budget. The deficit stood at Rs16.53 lakh crore in actual terms. India still retains its title as the fastest-growing major economy. The manufacturing and mining sectors have contributed to the growth numbers, beating government projections.
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The net tax collection for FY24 reached Rs23.26 lakh crore, while expenses were at Rs44.42 lakh crore. The CGA report indicates a revenue deficit of 2.6 percent and an effective revenue deficit of 1.6 percent. Looking ahead to FY25, the government anticipates a fiscal deficit of 5.1 percent of the GDP, equivalent to Rs16.85 lakh crore.
India"s fiscal deficit: Historical data
When looking back at India"s history of fiscal deficit, we see lots of ups and downs. Let’s take a brief look:First Published: Aug 12, 2024, 16:28
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