BOOM FAQ #4: What Is Fiscal Deficit?

The fiscal deficit is the difference between the government's expenditure and its non-debt receipts.

Fiscal deficit is the excess in expenditure over the total non-borrowed receipts of the government in a financial year. It is an indication of the borrowing required by the government, and is usually funded by borrowing from the public. A fiscal deficit is either caused due to a revenue deficit (actual revenues less the budgeted estimates) or due to excessive expenditure by the government. The calculation takes all of government's expenditure into account, and all the government's revenue and non-debt capital income.

The fiscal deficit is expressed as an absolute monetary value, but in common parlance is often expressed as a percentage of Gross Domestic Product (GDP).

The government defines the fiscal deficit as:

"Fiscal deficit/surplus is the difference between the government's expenditures and its revenues (excluding the money it's borrowed). A country's fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP)."

Over the past decade, India saw a fiscal deficit high of 6.6% in financial year 2009 - 2010. Financial year 2017 - 2018 saw a fiscal deficit of 3.5%. The budgeted estimates of FY 2018 - 2019 saw it at 3.3%, with the revised estimates projecting it at 3.4%. The budgeted estimates for the current financial year - 2019 - 2020 - projects it at 3.3% of GDP at ₹7.03 lakh crores. However, the government has already exceeded its fiscal deficit target for the current financial year. At the end of April - Nov, the government's fiscal deficit stood at ₹8.06 lakh crore, 115% of the the estimate.

This fiscal year, to plug the deficit, the government estimates to raise just over ₹4.48 lakh crores through market borrowings, ₹1.3 lakh crores through securities against small savings, over ₹78,531 crores through state provident funds and other sources of borrowing, and ₹50,000 crores through a cash balance drawdown. The fiscal deficit also gives an indication on the future disbursement of credit, as when the government borrows more, it usually puts downward pressure on liquidity in the economy. This frees lesser liquidity for the credit. requirement of other participants in the economy, such as individuals and businesses.

Updated On: 2020-01-28T18:13:35+05:30
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