Fiscal Deficit

2nd December, 2021 Economy

Figure 5: No Copyright Infringement Intended

Context:

The Union government's fiscal deficit works out to be Rs 5.47 lakh crore or 36.3 per cent of the budget estimates at the end of October 2021 on the back of improvement in revenue collection.

For the current financial year, the government expects the deficit at 6.8 per cent of GDP or Rs 15.06 lakh crore.
Total expenditure incurred by the Centre was Rs 18.26 lakh crore (52.4 per cent of corresponding BE 2021-22), out of which Rs 15.73 lakh crore is on revenue account and Rs 2.53 lakh crore is on capital account.

Definition: The difference between total revenue and total expenditure of the government is termed as fiscal deficit.
It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
Description: The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts.
The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.
Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure.
Capital expenditure is incurred to create long-term assets such as factories, buildings and other development.
A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

Government Revenue Receipts

Government Capital Receipts

Government Expenditure

Corporation Tax

Income Tax

Custom Duties

Union Excise Duties

GST and taxes of Union territories

Interest Receipts

Dividends and Profits

External Grants

Other non-tax revenues

Receipts of union territories

Revenue Expenditure

Capital Expenditure

Interest Payments

Grants-in-aid for creation of capital assets

The FRBM Act aims to introduce transparency in India's fiscal management systems.
The Act‘s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India.
The FRBM Act was enacted to introduce more equitable distribution of India's debt over the years.

The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:

The FRBM Act proposed that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities be projected as a percentage of Gross Domestic Product (GDP) in the medium-term fiscal policy statement.

Targets: The committee suggested using debt as the primary target for fiscal policy and that the target must be achieved by 2023.
Fiscal Council: The committee proposed to create an autonomous Fiscal Council with a chairperson and two members appointed by the Centre (not employees of the government at the time of appointment)
Deviations: The committee suggested that the grounds for the government to deviate from the FRBM Act targets should be clearly specified
Borrowings: According to the suggestions of the committee, the government must not borrow from the RBI, except when