FISCAL DEFICIT - INTRODUCTION,OBJECTIVES,REASONS,TRENDS

2. INTRODUCTION
 Fiscal deficit is the difference between the
government’s total expenditure and its total
receipts ( excluding borrowings ).
 If the government spends more than it earns we
have a situation which is called fiscal deficit.
 Fiscal deficit = government spending –
government revenue

3. OBJECTIVES OF FISCAL DEFICIT
Achieve
desirable
price
level
Achieve
desirable
consumptio
n level
Achieve
desirable
employment
level
Achieve
desirable
income
distribution
Increase in
capital
formation

4. REASONS FOR FISCAL DEFICIT
Increase
is
subsidies
Payment
of
interest
Defense
expendit
ure
Weak
revenue
mobilization
Huge
borrowin
gs
Unproduct
ive
expenditur
e
Tax
evasion

5. FISCAL DEFICIT AS A % OF GDP
 The government fiscal position in the year gone by was
complicated further by economic growth which was
much lower than projected.
 National income data released by the government pegged
nominal gross domestic product at Rs 203.40 lakh crore.
 As such, fiscal deficit as a % of GDP settled at 4.6% in
FY20.
 This is the highest in the 7 years.

6. FISCAL DEFICIT(AS % OF GDP)
0 2 4 6
FY14
FY15
FY16
FY17
FY18
FY19
FY20

7. REVENUE SHORTFALL
 The government’s revenue for the fiscal
ended March 31 was Rs 16.82 lakh crore,
which was just 91% of the full year’s target.
 The government’s tax collection was Rs.
13.56 lakh crore or 90% of the target.
 Overall non-tax revenue was Rs3.26 lakh
crore, or 94% of the revised target.

8. EXPENDITURE TRENDS
 Fears of a shortfall in revenue had prompted the government to
tighten spending.
 However, much of that came towards the second half of the
year and had limited impact.
 The government had to step up spending once again as the
Covid crisis hit the economy.
 For the full year, expenditure stood at Rs 26.86 lakh crore ,
99.5% of the revised target.
 Capital expenditure stood at Rs 3.4 lakh crore or 97% of target.
 Revenue expenditure stood at 133% of the revised estimate.

9. 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
 Debt trap
 Hampers the future growth

10. WAYS TO REDUCE FISCAL DEFICIT
 Proper distribution system
 Raising import taxes and prices of
petroleum products
 Cutting down expenses on government depts
 Subsidy at the input level
 Improve the government investment