FISCAL DEFICIT- AN INDIAN PERSPECTIVE
Fiscal Deficit is the difference between the total expenditure and the capital and revenue receipts excluding the borrowings. In other words, fiscal deficit is the difference between total expenditure of the government and the total receipt of the government.
Now looking from the Indian perspective view, the fiscal deficit of the Indian government for the financial year 2017-18 was 3.5 percent, which was about 0.3 percent more than the targeted budget fiscal deficit of 3.2 percent. If we look into the past two decades, the fiscal deficit in 1996-97 was 4 percent which grew to 6 percent in 2002-03. In the financial year 2007-08, the fiscal deficit was around 2.5 percent which increased to 5.9 percent in 2011-12.
The fiscal deficit is an important component of the budget planning. The increased Fiscal Deficit puts enormous pressure on the government expenditure. As a result the government is forced to borrow funds mainly from two sectors:- Domestic sectors and Foreign sectors. Domestic sectors includes RBI, commercial banks and general public. The government raises money from the general public by issuing bonds, treasury bills, kishan vikas patra etc. From the foreign sectors the government raises money from the IMF, World Bank, Asian Development Banks and foreign countries like US, UK, Japan, etc.
There are some advantages and some disadvantages of Fiscal Deficit. I would like to share some advantages of fiscal deficit first. During the fiscal deficit, the government expenditure is high. This expenditure is mainly incurred in the infrastructure sector, public health care sector, economic development activities, etc. Observing such economic developments in the country, the foreign investors are encouraged to invest more in the economy. When these investors comes,they set up their own industry in the country and create a competitive business environment in the country. This in turn helps in generating employment in the country and the purchasing power of the people goes up. In return the government revenues increases through collection of taxes like the corporate tax, GST, direct tax etc. considering that the government's expenditure remains the same, and there is an increase in the government's revenue, the fiscal deficit will decrease or there will be a stable fiscal deficit in the economy.
The cons of fiscal deficit are inflation, financial crisis and debt trap. Due to high fiscal deficit, the government's expenditure is high. There is huge amount of liquidity in the economy. The purchasing power of the people will increase, so it will create pressure on the price of the goods and services. As a result of which inflation will increase.
As government's expenditure increases . The government will be forced to borrow funds, since the government has limited amount of financial resources. This makes the government vulnerable to its borrowers or creditors. As a result huge conditions are imposed on the government, making it difficult for the procurement of funds. As a result of which the government moves into recision, leading to financial crisis.
When the government repays back the borrowed funds, it has to pay interest as well as the principal amount. The interest is a revenue expenditure for the government. In order to repay back the expense, the government again borrows the funds due to lack of the financial resources. The cyclicity of borrowing funds will continue unless the financial resources of the government increases. This is called debt trap.
Thus to conclude, India is in a better fiscal deficit condition when compared to the Latin American countries like Venezula, Cuba etc. Thus inorder to achieve the target of $10 trillion economy by 2030, sufficient amount of healthy economic policies are required to reduce the fiscal deficit of our country. I hope that after thirty years, we, Indians can proudly say that , we , Indians have changed the destiny of our country by reinventing ourselves from a fiscal deficit to a fiscal surplus country.
The fiscal deficit is an important component of the budget planning. The increased Fiscal Deficit puts enormous pressure on the government expenditure. As a result the government is forced to borrow funds mainly from two sectors:- Domestic sectors and Foreign sectors. Domestic sectors includes RBI, commercial banks and general public. The government raises money from the general public by issuing bonds, treasury bills, kishan vikas patra etc. From the foreign sectors the government raises money from the IMF, World Bank, Asian Development Banks and foreign countries like US, UK, Japan, etc.
There are some advantages and some disadvantages of Fiscal Deficit. I would like to share some advantages of fiscal deficit first. During the fiscal deficit, the government expenditure is high. This expenditure is mainly incurred in the infrastructure sector, public health care sector, economic development activities, etc. Observing such economic developments in the country, the foreign investors are encouraged to invest more in the economy. When these investors comes,they set up their own industry in the country and create a competitive business environment in the country. This in turn helps in generating employment in the country and the purchasing power of the people goes up. In return the government revenues increases through collection of taxes like the corporate tax, GST, direct tax etc. considering that the government's expenditure remains the same, and there is an increase in the government's revenue, the fiscal deficit will decrease or there will be a stable fiscal deficit in the economy.
The cons of fiscal deficit are inflation, financial crisis and debt trap. Due to high fiscal deficit, the government's expenditure is high. There is huge amount of liquidity in the economy. The purchasing power of the people will increase, so it will create pressure on the price of the goods and services. As a result of which inflation will increase.
As government's expenditure increases . The government will be forced to borrow funds, since the government has limited amount of financial resources. This makes the government vulnerable to its borrowers or creditors. As a result huge conditions are imposed on the government, making it difficult for the procurement of funds. As a result of which the government moves into recision, leading to financial crisis.
When the government repays back the borrowed funds, it has to pay interest as well as the principal amount. The interest is a revenue expenditure for the government. In order to repay back the expense, the government again borrows the funds due to lack of the financial resources. The cyclicity of borrowing funds will continue unless the financial resources of the government increases. This is called debt trap.
Thus to conclude, India is in a better fiscal deficit condition when compared to the Latin American countries like Venezula, Cuba etc. Thus inorder to achieve the target of $10 trillion economy by 2030, sufficient amount of healthy economic policies are required to reduce the fiscal deficit of our country. I hope that after thirty years, we, Indians can proudly say that , we , Indians have changed the destiny of our country by reinventing ourselves from a fiscal deficit to a fiscal surplus country.
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