Fiscal Deficit
The government is taking a lot of flak these days for the 16-year high fiscal deficit in the current fiscal year. Here’s how it is: The government’s ‘non-borrowed receipts’ — revenue receipts plus loan repayments received by the government plus miscellaneous capital receipts, primarily divestment proceeds — fall short of its expenditure. The excess of total expenditure over total non-borrowed receipts is called ‘fiscal deficit’. The government then has to borrow money from the people to meet the shortfall.
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 will be in debt.
Primary Deficit
This is a key indicator. When it shrinks, it indicates we are not doing too badly on fiscal health. The primary deficit is fiscal deficit minus interest payments the government makes on its earlier borrowings.
Deficit And The GDP
It’s important to see where all this fit in the larger economic picture. The Budget document mentions deficit as a percentage of GDP. In absolute terms, the fiscal deficit may be large, but if it is small compared to the size of the economy, then it’s not such a bad thing. Prudent fiscal management requires that the government does not borrow to consume in the normal course.
FRBM Act
Enacted in 2003, the Fiscal Responsibility and Budget Management Act sought the elimination of revenue deficit by 2008-09. This means that from 2008-09, the government was to meet all its revenue expenditure from its revenue receipts. Any borrowing was to be done to meet capital expenditure — that is, repayment of loans, lending and fresh investment. The Act also mandates a 3% limit on fiscal deficit after 2008-09. The financial crisis and the subsequent slowdown forced the government to abandon the path of fiscal consolidation.
The government is taking a lot of flak these days for the 16-year high fiscal deficit in the current fiscal year. Here’s how it is: The government’s ‘non-borrowed receipts’ — revenue receipts plus loan repayments received by the government plus miscellaneous capital receipts, primarily divestment proceeds — fall short of its expenditure. The excess of total expenditure over total non-borrowed receipts is called ‘fiscal deficit’. The government then has to borrow money from the people to meet the shortfall.
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 will be in debt.
Primary Deficit
This is a key indicator. When it shrinks, it indicates we are not doing too badly on fiscal health. The primary deficit is fiscal deficit minus interest payments the government makes on its earlier borrowings.
Deficit And The GDP
It’s important to see where all this fit in the larger economic picture. The Budget document mentions deficit as a percentage of GDP. In absolute terms, the fiscal deficit may be large, but if it is small compared to the size of the economy, then it’s not such a bad thing. Prudent fiscal management requires that the government does not borrow to consume in the normal course.
FRBM Act
Enacted in 2003, the Fiscal Responsibility and Budget Management Act sought the elimination of revenue deficit by 2008-09. This means that from 2008-09, the government was to meet all its revenue expenditure from its revenue receipts. Any borrowing was to be done to meet capital expenditure — that is, repayment of loans, lending and fresh investment. The Act also mandates a 3% limit on fiscal deficit after 2008-09. The financial crisis and the subsequent slowdown forced the government to abandon the path of fiscal consolidation.
