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Fiscal deficit in India




                -K.AKHILA REDDY
                 11116030
Agenda
Definition

Fiscal deficit as a percentage of GDP

Elements of fiscal deficit

Causes

consequences

Reducing fiscal deficit

Conclusion
Definition



Fiscal deficit is the difference between the
government's total expenditure and its total receipts
(excluding borrowing).

If the Government spends more than it earns we
have a situation which is called a fiscal deficit.


Fiscal deficit=government spending – government
revenue
Fiscal deficit as a percentage of GDP

GDP is the market value of all final goods and
 services produced in a country in a year. The
    GDP number includes both government
 spending and private consumption of goods
                and services.
FISCAL DEFICIT
                                FISCAL DEFICIT
                                             6.5
      6.04 6.25                          6                     5.9   5.8
5.6               5.45
                                                   4.9                     5.1
                                                         4.6

                                3.34
                         2.93
                                       2.5
FISCAL DEFICIT AS % OF TOTAL RECEIPTS
              FISCAL DEFICIT AS % OF TOTAL RECEIPTS

                                    73
                                                       68
                        62



                                                47


 33

         23




FY07    FY08           FY09        FY10         FY11   FY12
Elements of fiscal deficit

Generally fiscal deficit takes place due to either revenue
deficit or a major hike in capital expenditure.




      Revenue                        Capital
       deficit                     expenditure
Revenue deficit

The difference between the government’s
current (or revenue) expenditure and total
current receipts (that is, excluding
borrowing)

Revenue deficit=budget revenue- actual net
revenue
EXAMPLE

Expected                 Actual

Revenue=Rs 100/-         Revenue=Rs 90/-

Expenditure=Rs 75/-      Expenditure=Rs 70/-

Net revenue=Rs 25/-      Net revenue=Rs 20/-

           REVENUE DEFICIT=RS 5/-
PERIOD          REVENUE
                                      DEFICIT
   REVENUE            1985-2005       3.41
   DEFICIT AS %       VIII PLAN       2.8
   OF GDP             1992-97
                      IX PLAN 1997-   3.95
                      2002
                      2002-03         4.44
                      2003-04         3.66
BE-BUDGET ESTIMATE    2004-05         2.53
                      2007-08         1.1
RE-REVENUE ESTIMATE   2008-09         4.5
                      2009-10         5.2
                      2010-11         3.3
                      2011-12(BE)     3.4
                      2011-12(RE)     4.4
                      2011-12(P)      4.3
                      2012-13(BE)     3.4
BE-BUDGET ESTIMATE
                                                             RE-REVISED ESTIMATE
REVENUE DEFICIT AS % OF GDP                          5.2     P-PROVISIONAL
                                                             (in GDP)
                    4.44                       4.5                     4.4   4.3
             3.95
                           3.66
3.41                                                       3.3   3.4               3.4

       2.8
                                  2.53




                                         1.1
100
                                                                      120




                      0
                                         40
                                                                            140




                                                      60




              -20
                          20
                                                           80
        1985-2005
VIII plan (1992-97)
 IX plan (1997-02)
           2002-03
          2003-04
          2004-05
          2007-08
          2008-09
           2009-10
            2010-11
       2011-12(BE)
       2011-12(RE)
         2011-12(P)
       2012-13(BE)
                                                                                  REVENUE DEFICIT AS % OF FISCAL DEFICIT




                               OF FISCAL DEFICIT
                               REVENUE DEFICIT AS %
Capital expenditure

Capital expenditure is the amount a company spends on
buying fixed assets, other than as part of acquisitions.


The capital Expenditure is the fund used by an
establishment to produce physical assets like
property, equipments or industrial buildings. Capital
expenditure is made by the establishment to consistently
maintain the operational activities.
CAPITAL EXPENDITURE OF CENTRE IN INDIA

PARTIC    2006-07    2007-08    2008-09    2009-10    2010-      2011-
ULARS                                                 11(BE)     12(RE)
A.NON     36690.69   41819      47379.08   62383.11   70106.40   90132.17
DEVELO
PMENT
EXPEND
ITURE
B.DEVEL   22602.49   65122.14   30110.85   38302.33   66990.08 62051.95
OPMEN
T
EXPEND
ITURE
C.LOANS 8672.22      1385.55    6747.62    7034.35    16801.46   2130.22
AND
EXPEND
ITURE
  SOURCE:MINISTRY108326.6 84237.55 107719.79
TOTAL( 67965.4    OF FINANCE,GOVT.OF INDIA            153897.94 154314.34
A+B+C)           9
                                                                 Rs.in crores
CAPITAL EXPENDITURE OF CENTRE IN INDIA
180000
                                           RS.IN CRORES
160000

140000

120000
                                             NON DEVELOPMENT
100000                                       EXPENDIUTRE

80000                                        DEVELOPMENT
                                             EXPENDITURE
60000                                        LOANS AND ADVANCES
40000
                                             TOTAL
20000

    0


                                             RE-REVISED ESTIMATES
                                             BE-BUDGET ESTIMATES
     SOURCE:MINISTRY OF FINANCE,GOVT. OF INDIA
CURRENT SCENARIO
        MONTH-WISE GROSS FISCAL DEFICIT OF CENTRAL
        GOVERNMENT OF INDIA

YEA      AP   MA   JUN    JUL   AU   SEP    OC   NO    DE    JAN FEB MA
R        RI   Y    E      Y     GU          T    V     C             RC
         L                      ST                                   H
2011-    746 560   3192. 6610 447    728.   2619 463   276   5392 586   1616
12       6.1 6.5   7     .0   7      7      .9   6     4.3   .1   3.8
2012-    671 743   4887
13       9.6 9.1   .3


                                                   RS.IN CRORES
MONTH-WISE GROSS FISCAL DEFICIT
OF CENTRAL GOVERNMENT OF INDIA

                                             FISCAL DEFICIT
8000
7000
6000
5000
4000
3000
2000
1000
   0
       Apr/11




                                                                                                                                     Jun/12
                                                             Oct/11




                                                                                                          Mar/12
                         Jun/11



                                           Aug/11




                                                                      Nov/11
                May/11




                                                                                                                   Apr/12
                                  Jul/11



                                                    Sep/11




                                                                                                 Feb/12
                                                                               Dec/11

                                                                                        Jan/12




                                                                                                                            May/12
Causes of fiscal deficit

Payment of interest

Poor performance of public sector
Excessive government borrowings

Tax evasion

Increase in subsidies

Defence expenditure
Payment of interest

One of the major components of
government expenditure is the interest
payment both on domestic loans and
foreign loans. The government debt has
increased considerably over the years. This
has resulted in increased interest burden on
the government
Poor performance of public sector


Political interference

Inefficiency and corruption of management

Lack of professionalism

Surplus staff
Excessive government borrowings


The internal and external debt of the
government has increased considerably
during the past few decades. Due to the
debts; the government has to incur high
expenditure in form of interest
payments.
Tax evasion

Indian tax system is made up of
complex procedures with numerous
exemptions. Corruptions is rampant
at all levels, which leads to the fiscal
imbalance.
Increase in subsidies

The major subsidies provided by the Central Government of India have
increased over the years resulting in fiscal imbalance.

period      Total central
            government           total central government
            subsidies                    subsidies
2003-04     44323
                                  200000
2004-05     45957                  150000
2005-06     47522                 100000
                                                                   total centra
2006-07     57125                   50000
                                                                   governmen
                                        0
2007-08     70066                                                  subsidies
2008-09     129333
2009-10     141351
2010-11     164153
                                  Rs in crore
2011-12     143570
Defence expenditure
The government has limited scope to reduce defence budget due to security problems
across the Indian borders


                      DEFENCE EXPENDITURE IN CRORES
 180000
 160000
 140000
 120000
 100000
  80000
  60000                                                                                                                                             DEFENCE
  40000                                                                                                                                             EXPENDITURE IN
  20000
      0                                                                                                                                             CRORES
                      2002-03




                                                                                              2007-08(BE)
                                                            2004-05




                                                                                                            2008-09
                                2003-04(RE)




                                                                                                                      2009-10
                                              2004-05(BE)


                                                                      2005-06
                                                                                2006-07(RE)




                                                                                                                                2010-11
            2001-02




                                                                                                                                          2011-12


                                                        SOURCE: ministry of defence,govt.of India
Consequences

Debt trap

Cut in capital expenditure

No increase in expenditure on education and health

High interest rates
Consequences

Fiscal imbalance may lead to inflation in the economy



High fiscal deficit may discourage foreign investment
in the country.

The government has to borrow additional funds to
solve fiscal deficit, which put extra burden on the
government for payment of interest.
Economic measures will help reduce
fiscal deficit: Pranab Mukherjee
                      PTI Nov 14, 2012, 03.09PM IST
NEW DELHI: President Pranab Mukherjee said
 measures like allowing FDI in multi-brand retail
 and civil aviation will help in reducing
 government's fiscal deficit and putting the economy
 back on high growth path.
"The government has recently unveiled several policy
 measures designed to put economy back on high
 growth trajectory," he said.


                           PTI Nov 14, 2012, 03.09PM IST
Govt plans to reduce fiscal deficit to
 3% by 2017: FM

Government would rely on aadhaar
enabled direct cash transfers of subsidies
to eliminate duplication or falsification.


Immediate corrective steps


Introduction of the amended direct taxes
code (DTC) bill


                                   PTI
                                   Published: Monday, October 29, 2012, 12:40
Thank you

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Fiscal deficit in india

  • 1. Fiscal deficit in India -K.AKHILA REDDY 11116030
  • 2. Agenda Definition Fiscal deficit as a percentage of GDP Elements of fiscal deficit Causes consequences Reducing fiscal deficit Conclusion
  • 3.
  • 4. Definition Fiscal deficit is the difference between the government's total expenditure and its total receipts (excluding borrowing). If the Government spends more than it earns we have a situation which is called a fiscal deficit. Fiscal deficit=government spending – government revenue
  • 5. Fiscal deficit as a percentage of GDP GDP is the market value of all final goods and services produced in a country in a year. The GDP number includes both government spending and private consumption of goods and services.
  • 6. FISCAL DEFICIT FISCAL DEFICIT 6.5 6.04 6.25 6 5.9 5.8 5.6 5.45 4.9 5.1 4.6 3.34 2.93 2.5
  • 7. FISCAL DEFICIT AS % OF TOTAL RECEIPTS FISCAL DEFICIT AS % OF TOTAL RECEIPTS 73 68 62 47 33 23 FY07 FY08 FY09 FY10 FY11 FY12
  • 8. Elements of fiscal deficit Generally fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure. Revenue Capital deficit expenditure
  • 9. Revenue deficit The difference between the government’s current (or revenue) expenditure and total current receipts (that is, excluding borrowing) Revenue deficit=budget revenue- actual net revenue
  • 10. EXAMPLE Expected Actual Revenue=Rs 100/- Revenue=Rs 90/- Expenditure=Rs 75/- Expenditure=Rs 70/- Net revenue=Rs 25/- Net revenue=Rs 20/- REVENUE DEFICIT=RS 5/-
  • 11. PERIOD REVENUE DEFICIT REVENUE 1985-2005 3.41 DEFICIT AS % VIII PLAN 2.8 OF GDP 1992-97 IX PLAN 1997- 3.95 2002 2002-03 4.44 2003-04 3.66 BE-BUDGET ESTIMATE 2004-05 2.53 2007-08 1.1 RE-REVENUE ESTIMATE 2008-09 4.5 2009-10 5.2 2010-11 3.3 2011-12(BE) 3.4 2011-12(RE) 4.4 2011-12(P) 4.3 2012-13(BE) 3.4
  • 12. BE-BUDGET ESTIMATE RE-REVISED ESTIMATE REVENUE DEFICIT AS % OF GDP 5.2 P-PROVISIONAL (in GDP) 4.44 4.5 4.4 4.3 3.95 3.66 3.41 3.3 3.4 3.4 2.8 2.53 1.1
  • 13. 100 120 0 40 140 60 -20 20 80 1985-2005 VIII plan (1992-97) IX plan (1997-02) 2002-03 2003-04 2004-05 2007-08 2008-09 2009-10 2010-11 2011-12(BE) 2011-12(RE) 2011-12(P) 2012-13(BE) REVENUE DEFICIT AS % OF FISCAL DEFICIT OF FISCAL DEFICIT REVENUE DEFICIT AS %
  • 14. Capital expenditure Capital expenditure is the amount a company spends on buying fixed assets, other than as part of acquisitions. The capital Expenditure is the fund used by an establishment to produce physical assets like property, equipments or industrial buildings. Capital expenditure is made by the establishment to consistently maintain the operational activities.
  • 15. CAPITAL EXPENDITURE OF CENTRE IN INDIA PARTIC 2006-07 2007-08 2008-09 2009-10 2010- 2011- ULARS 11(BE) 12(RE) A.NON 36690.69 41819 47379.08 62383.11 70106.40 90132.17 DEVELO PMENT EXPEND ITURE B.DEVEL 22602.49 65122.14 30110.85 38302.33 66990.08 62051.95 OPMEN T EXPEND ITURE C.LOANS 8672.22 1385.55 6747.62 7034.35 16801.46 2130.22 AND EXPEND ITURE SOURCE:MINISTRY108326.6 84237.55 107719.79 TOTAL( 67965.4 OF FINANCE,GOVT.OF INDIA 153897.94 154314.34 A+B+C) 9 Rs.in crores
  • 16. CAPITAL EXPENDITURE OF CENTRE IN INDIA 180000 RS.IN CRORES 160000 140000 120000 NON DEVELOPMENT 100000 EXPENDIUTRE 80000 DEVELOPMENT EXPENDITURE 60000 LOANS AND ADVANCES 40000 TOTAL 20000 0 RE-REVISED ESTIMATES BE-BUDGET ESTIMATES SOURCE:MINISTRY OF FINANCE,GOVT. OF INDIA
  • 17. CURRENT SCENARIO MONTH-WISE GROSS FISCAL DEFICIT OF CENTRAL GOVERNMENT OF INDIA YEA AP MA JUN JUL AU SEP OC NO DE JAN FEB MA R RI Y E Y GU T V C RC L ST H 2011- 746 560 3192. 6610 447 728. 2619 463 276 5392 586 1616 12 6.1 6.5 7 .0 7 7 .9 6 4.3 .1 3.8 2012- 671 743 4887 13 9.6 9.1 .3 RS.IN CRORES
  • 18. MONTH-WISE GROSS FISCAL DEFICIT OF CENTRAL GOVERNMENT OF INDIA FISCAL DEFICIT 8000 7000 6000 5000 4000 3000 2000 1000 0 Apr/11 Jun/12 Oct/11 Mar/12 Jun/11 Aug/11 Nov/11 May/11 Apr/12 Jul/11 Sep/11 Feb/12 Dec/11 Jan/12 May/12
  • 19. Causes of fiscal deficit Payment of interest Poor performance of public sector Excessive government borrowings Tax evasion Increase in subsidies Defence expenditure
  • 20. Payment of interest One of the major components of government expenditure is the interest payment both on domestic loans and foreign loans. The government debt has increased considerably over the years. This has resulted in increased interest burden on the government
  • 21. Poor performance of public sector Political interference Inefficiency and corruption of management Lack of professionalism Surplus staff
  • 22. Excessive government borrowings The internal and external debt of the government has increased considerably during the past few decades. Due to the debts; the government has to incur high expenditure in form of interest payments.
  • 23. Tax evasion Indian tax system is made up of complex procedures with numerous exemptions. Corruptions is rampant at all levels, which leads to the fiscal imbalance.
  • 24. Increase in subsidies The major subsidies provided by the Central Government of India have increased over the years resulting in fiscal imbalance. period Total central government total central government subsidies subsidies 2003-04 44323 200000 2004-05 45957 150000 2005-06 47522 100000 total centra 2006-07 57125 50000 governmen 0 2007-08 70066 subsidies 2008-09 129333 2009-10 141351 2010-11 164153 Rs in crore 2011-12 143570
  • 25. Defence expenditure The government has limited scope to reduce defence budget due to security problems across the Indian borders DEFENCE EXPENDITURE IN CRORES 180000 160000 140000 120000 100000 80000 60000 DEFENCE 40000 EXPENDITURE IN 20000 0 CRORES 2002-03 2007-08(BE) 2004-05 2008-09 2003-04(RE) 2009-10 2004-05(BE) 2005-06 2006-07(RE) 2010-11 2001-02 2011-12 SOURCE: ministry of defence,govt.of India
  • 26. Consequences Debt trap Cut in capital expenditure No increase in expenditure on education and health High interest rates
  • 27. Consequences Fiscal imbalance may lead to inflation in the economy High fiscal deficit may discourage foreign investment in the country. The government has to borrow additional funds to solve fiscal deficit, which put extra burden on the government for payment of interest.
  • 28. Economic measures will help reduce fiscal deficit: Pranab Mukherjee PTI Nov 14, 2012, 03.09PM IST
  • 29. NEW DELHI: President Pranab Mukherjee said measures like allowing FDI in multi-brand retail and civil aviation will help in reducing government's fiscal deficit and putting the economy back on high growth path. "The government has recently unveiled several policy measures designed to put economy back on high growth trajectory," he said. PTI Nov 14, 2012, 03.09PM IST
  • 30. Govt plans to reduce fiscal deficit to 3% by 2017: FM Government would rely on aadhaar enabled direct cash transfers of subsidies to eliminate duplication or falsification. Immediate corrective steps Introduction of the amended direct taxes code (DTC) bill PTI Published: Monday, October 29, 2012, 12:40