Knowing More on Future Course of Deficit

A fiscal deficit occurs when a government’s revenue falls short of its spending. A government with a budgetary deficit is spending more than it can afford. Fiscal deficit can be defined as ‘the excess of total disbursements from the Consolidated Fund of India, except debt repayment, over total revenues into the fund (excluding debt receipts) during a financial year’.

According to the government, except for exceptional items, the Consolidated Fund of India is the primary government account. All national expenditures are made, and where all revenue is deposited. For a long time, India has been running a budget deficit and has a largely impoverished population due to the low per capita income compared to other economies. The government is forced to invest money in subsidies and regularly help the economically disadvantaged.

What is a fiscal deficit?

• A fiscal deficit occurs when the government’s total expenditures exceed its revenue. It’s computed by subtracting total revenue from total spending and expressed in either real terms or as a percentage of the GDP.
• When the government borrows money to spend more than it earns, it compensates for a shortage in revenue relative to spending. The fiscal deficit is the difference or shortfall between the two.

• It might happen due to a significant increase in the capital investment needed to create long-term assets or provide financial support to impoverished farmers, labourers, and other vulnerable economic classes.

Determining the Fiscal Deficit

The difference between the government’s total revenue and total expenditures may be used to determine the fiscal deficit. Taxes, non-debt capital receipts, and other revenue types, excluding borrowings, are all included in the government’s total income.

Fiscal Deficit = Total expenditure by the government (revenue and capital expenditure) – Total income of the government (loan recovery, revenue, and non-revenue receipts)

What are the causes of this budget deficit?

• The federal government has many options for controlling budget imbalance. It might be due to a reduction in spending or an increase in revenue and off-budget borrowings (not included in the fiscal’s Union budget).
• Depending on the status of the economy and the steps required, the Union government may opt to increase or decrease the fiscal deficit.
• At the same time, the budget imbalance expands due to a loss in government revenue due to lower taxes and an overall increase in spending. As a result, a growing budget imbalance isn’t always bad.

The distinction between a fiscal and budget deficit

A budget deficit is a gap between all government expenditures and receipts in capital and revenue accounts. It is the total of the revenue and capital account deficits. The government faces a revenue shortfall when revenue incomes are fewer than revenue expenditures. The fiscal deficit is the recommended statistic rather than a budget deficit measure.

India’s Fiscal Deficit

In February 2022, the government announced that the fiscal deficit for the financial year 2020–21 would be 9.5 per cent of the GDP, up from the anticipated 3.5 per cent. The government overshot its objective of a 3.3 per cent budget deficit in the previous fiscal year, i.e. 2019–20, by about 110 basis points due to inadequate revenue generation. Given the COVID-19-induced lockdown and the government’s extreme budgetary measures to assist the economy, the government is anticipated to exceed its planned deficit objectives.

The revised fiscal deficit of India is currently estimated to be about Rs. 15,91,089 crores against the budget of the country is about 15,06,812 crores. And the deficit for the year 2022 to 2023 is estimated to be about Rs. 16,61,196 crores. 

Conclusion

A fiscal deficit is created when a government spends more money than it receives in taxes and other income, excluding debt. Government borrowing bridges the gap between revenue and spending. Since World War II, the government has run a fiscal deficit almost every year. A significant budget imbalance indicates that the government has spent over its means every year.

Economists must monitor fiscal deficits to assess how much the government spends compared to what it earns. A significant budget deficit in a developing country like India can create economic disruption since balancing and rebalancing consume many valuable resources. It becomes more critical for the Union government to maintain a stable (non-fluctuating) fiscal deficit.