1. Home
  2. Blog
  3. UPSC

Fiscal Deficit

Why is it in the news?

  • During the April-August period of fiscal year 2023-24, India’s fiscal deficit reached 36% of the Budget Estimate (BE), compared to 33% during the same period in the previous fiscal year.
  • In absolute terms, the fiscal deficit amounted to ₹6.42-lakh crore by the end of August, according to data from the Controller General of Accounts (CGA).
  • The government has set a fiscal deficit target of ₹17.87-lakh crore, which is equivalent to 5.9% of GDP, down from 6.4% in FY23.

About Fiscal Deficit

  • Fiscal deficit represents the difference between government income and expenditure and indicates the total amount of borrowing required by the government.
  • Expressed as a percentage of the country’s GDP, it indicates the extent to which the government must borrow to cover its expenses.
  • High Fiscal Deficit can lead to inflation; may result in currency devaluation; and increases the government’s debt burden.
  • Low Fiscal Deficit is a sign of fiscal discipline and a healthy economy.

Positive Aspects

  • Allows the government to boost spending on public services and infrastructure, stimulating economic growth.
  • Facilitates funding for long-term investments like infrastructure projects.
  • Can lead to job creation, reducing unemployment and improving living standards.

Negative Aspects

  • Persistent high fiscal deficits lead to growing government debt, placing a burden on future generations.
  • Large fiscal deficits can increase the money supply, resulting in higher inflation and reduced purchasing power.
  • Heavy government borrowing for deficit financing can raise interest rates, making it difficult for the private sector to access credit and crowding out private investment.
  • Excessive fiscal deficits may necessitate borrowing from foreign sources, depleting foreign exchange reserves and impacting the balance of payments.

Get free UPSC Updates straight to your inbox!

Get Updates on New Notification about APPSC, TSPSC and UPSC

Get Current Affairs Updates Directly into your Inbox

Discover more from AMIGOS IAS

Subscribe now to keep reading and get access to the full archive.

Continue reading