Concept of Fiscal Deficit

Fiscal Deficit is the difference between the total income of the government (total taxes and non-debt capital receipts) and its total expenditure. A fiscal deficit situation occurs when the government’s expenditure exceeds its income. This difference is calculated both in absolute terms and also as a percentage of the Gross Domestic Product (GDP) of the country. A recurring high fiscal deficit means that the government has been spending beyond its means.

Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts)

If the total expenditure of the government exceeds its total revenue and non-revenue receipts in a financial year, then that gap is the fiscal deficit for the financial year. The fiscal deficit is usually mentioned as a percentage of GDP. For example, if the gap between the Centre’s expenditure and total income is Rs 5 lakh crore and the country’s GDP is Rs 200 lakh crore, the fiscal deficit is 2.5% of the GDP.

The government meets fiscal deficit by borrowing money. In a way, the total borrowing requirements of the government in a financial year is equal to the fiscal deficit in that year.

In the BUDGET 2019-20, vision for 10 most important dimensions in 2030 was introduced. However it may deepen the Fiscal Balance. But still the target of Fiscal deficit was kept 3.4% of GDP, and Current account deficit – 2.5% of GDP. With allotment of fund of Rs 60,000 Crores for MGNREGA, Pradhan Mantri Gram Sadak Yojana (PMGSY) is being allocated Rs19,000 Crore. Puts stress on the Fiscal side. But India being a Socilist and welfare econmomy, it is the need of the hour.