What is fiscal deficit?

The difference between total revenue and total expenditure of the government is termed
as fiscal deficit. It is an indication of the total borrowings needed by the government.
While calculating the total revenue, borrowings are not included. Generally fiscal deficit
takes place due to either revenue deficit or a major hike in capital expenditure. Capital
expenditure is incurred to create long-term assets such as factories, buildings and other
development. A deficit is usually financed through borrowing from either the central
bank of the country or raising money from capital markets by issuing different
instruments like treasury bills and bonds.

Fiscal deficit is an economic phenomenon, where the Government's total expenditure surpasses
the revenue generated . It is the difference between the government's total receipts (excluding
borrowing) and total expenditure. Fiscal deficit gives the signal to the government about the
total borrowing requirements from all sources.

Components of fiscal deficit

The primary component of fiscal deficit includes revenue deficit and capital expenditure.

Revenue deficit: It is an economic phenomenon, where the net amount received fails to meet the
predicted net amount to be received.

Capital expenditure: It is the fund used by an establishment to produce physical assets like
property, equipments or industrial buildings. Capital expenditure is made by the establishment
to consistently maintain the operational activities.

In India, the fiscal deficit is financed by obtaining funds from Reserve Bank of India, called
deficit financing. The fiscal deficit is also financed by obtaining funds from the money market
(primarily from banks).

Arguments: Fiscal deficit lead to inflation

According to the view of renowned economist John Maynard Keynes, fiscal deficits facilitates
nations to escape from economic recession. From another point of view, it is believed that
government need to avoid deficits to maintain a balanced budget policy.

In order to relate high fiscal deficit to inflation, some economists believe that the portion of fiscal
deficit, which is financed by obtaining funds from the Reserve Bank of India, directs to rise in
the money stock and a higher money stock eventually heads towards inflation.

Expert recommendation
Financial advisors recommend that the Government should not promote disinvestment to reduce
fiscal deficits. Fiscal deficit can be reduced by bringing up revenues or by lowering expenditure.

Impact
Fiscal deficit reduction has an impact over the agricultural sector and social sector. Government's
investments in these sectors will be reduced.

ndia is one of the fastest growing economies in the world. The foreign
exchange reserves reach a new high every week (($314 billion), inflation
has not been controlled due to hike in the price of crude oil (nearly $135)
and interest rates continue to be low. Indian fiscal deficit is the highest in
percentage among the other countries of the world.

What is fiscal deficit?

Fiscal deficit is essentially the difference between what the government

spends and what it earns. It is expressed as a percentage of GDP.

India's fiscal deficit was brought down to 3.17% (Rs 1,43,653 crore) of the
gross domestic product in 2007-08 from 3.8% in 2006-07. The government
has promised to cut the deficit further to 2.5% of GDP (Rs 1,33,287 crore)
by the end of 2008-09, but looking at the way things are going, economists
say, it is unlikely the government will meet its target

India's fiscal deficit continues to be among the highest in the world and
underlying pressures are not entirely showing up in headline fiscal
numbers, Reserve Bank of India Governor Y. V. Reddy said on Monday.