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.
