Economy Fiscal_deficit Fiscal deficit : Amount by which govt spendings overshoots govt

Economy Fiscal_deficit

Fiscal deficit : Amount by which govt spendings overshoots govt revenue in a fiscal. The fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing). In nutshell, it is equal to borrowing made by government.


Significance:

--JM KEYNES has suggested that govt should focus on spendings and fiscal deficit helps in coming out of economic recession
--In case of India, fiscal deficit has been ever present except 3 years
-- india is still a developing country and need a lot to spend on social and infrastructure development which it is unable to fulfil via revenue generated
--FRBM ACT and NK singh committee
--currently at 3.5 percent
--good part is most of the debt are domestic


Factors for fiscal deficit:

--low tax to GDP ratio
--Oil price fluctuations
--low Exports competitiveness
--manufacturing is still in nascent stage
--populistic measures taken by government like non merit subsidies
--inability to boost productivity of economy and spur investment in building infrastructure.


Disadvantage:

--Its a cheque written by future generations which we are spending
--currency depreciation
--debt cycle
--disincentivises fiscal prudence
--may result in high rate of inflation
--affect credit rating and thus avenues for foreign investment in India
--crowding out private investment

If fiscal deficit is utilised for building capital asset in India, then it is good. Otherwise it may lead to vicious cycle of debt and inflation.

Credit - India Bhai group discussion

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