India's fiscal deficit widens to Rs 11.91 lakh crore for Apr-Jan: Check out what fiscal deficit means and why it's important
The government’s fiscal deficit widened to Rs 11.91 lakh crore in the first 10 months of FY23. This amount translates to 67.8% of the fiscal deficit target set by the government for the full year. Fiscal deficit in the same period last financial year was 58.9% of that year’s target.
In the Union Budget 2023, the government made an upward revision in the fiscal deficit target for 2022-2023 by increasing the amount to Rs 17.55 lakh crore from Rs 16.61 lakh crore. However, the fiscal deficit as a percentage of the GDP will remain at 6.4% as the GDP of the country will exceed the estimates.
In the April-January period, the government’s total revenue receipts were Rs 19.76 lakh crore and the net tax revenue was Rs 16.89 lakh crore. The total expenditure till January was Rs 31.67 lakh crore.
What is Fiscal Deficit?
The fiscal deficit is a crucial aspect of the government’s economic policy. Just like any individual or business, the government follows a budget as well. The fiscal deficit refers to the difference between the total expenditure and revenue of the government during a particular year. The fiscal deficit can help the government gauge the amount of money it requires in order to finance the expenses that it has to occur.
The government is in a fiscal deficit if its expenditure exceeds the total revenue or if there is a significant increase in the capital expenditure that the government is undertaking. The government incurs capital expenditure to build long-term assets and accelerate growth in the economy.
It finances the deficit by borrowing from the central bank of the country. The government can also tap into capital markets to raise money by issuing treasury bills or bonds.
The fiscal deficit number is always expressed in the percentage of the gross domestic product (GDP) of the country.
Impact of Fiscal Deficit
A high fiscal deficit is indicative of the government’s increased reliance on borrowing money to finance its expenses. This means that the government is unable to efficiently generate enough revenue to finance its expenses.
With increased borrowing, the interest rates tend to go higher. High interest rates increase production costs in the economy leading to higher prices. Hence, a prolonged period of high fiscal deficit impacts the growth and stability of an economy negatively. It can also affect the sovereign ratings of the country.
On the flip side, fiscal deficits are also believed to pump prime a sluggish economy. A government’s increased capital expenditure can propel growth in a stagnant economy by spending more productive assets leading to more employment and creating investments.
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The GDP growth rate fell to 4.4% in Q3FY23 from 6.3% recorded in the second quarter of FY2023. The economy grew at 13.2% in Q1FY23.