Fiscal Deficit
The rising fiscal deficit has dominated all discussions on the
budget. The excess of government’s expenditure over its tax and non-tax revenues
has to be met with borrowings from the public. This borrowing is called fiscal
deficit, which is usually expressed as a percentage of GDP. A high fiscal
deficit runs the risk of government cornering the bulk of the savings, leaving
little for corporate and other borrowers, or what is called crowding out.
Prolonged periods of high fiscal deficit run the risk of raising interest rates
and inflation and depressing growth. A deficit of 3% of GDP is seen as
sustainable. In the current year, the government has budgeted a fiscal deficit
of 4.6% of GDP.
Revenue Deficit
Revenue deficit is an important
control indicator. All expenditure on revenue account should ideally be
met from receipts on revenue account. Ideally, revenue deficit should be zero,
else the government debt will keep rising. Revenue deficit means the government
is essentially borrowing to consume, a recipe for financial disaster. Ideally,
government borrowing should fund asset creation, which will yield returns in the
future.
Primary Deficit
The primary deficit is fiscal deficit minus interest payments the
government makes on its earlier borrowings. It is another indicator to judge the
quality of the government deficit.
Financing of Fiscal Deficit
Market borrowings are the biggest source of funds for meeting the
fiscal deficit. The government also takes a portion of the funds raised through
small savings by issuing securities to the fund that manages small savings. A
part of deficit is also met through external sources of funds. Provident fund
accumulations of state government employees is also available for meeting the
fiscal deficit
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