{"id":31363,"date":"2018-10-27T13:17:42","date_gmt":"2018-10-27T07:47:42","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=31363"},"modified":"2018-10-27T13:17:42","modified_gmt":"2018-10-27T07:47:42","slug":"why-the-fuss-about-fiscal-deficit","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/why-the-fuss-about-fiscal-deficit\/","title":{"rendered":"Why the fuss about fiscal deficit?"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/todays-paper\/tp-business\/why-the-fuss-about-fiscal-deficit\/article22725409.ece\"><b>Why the fuss about fiscal deficit?<\/b><\/a><\/p>\n<p><b>Context:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">India\u2019s fiscal deficit in the past ten years (based on actuals) has hovered between 3.5% and 6.4% of nominal GDP.<\/span><\/li>\n<\/ul>\n<p><b>Expenses overshoot<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In FY18, the Centre\u2019s total income (as per the revised estimates) from taxes, non-tax revenues and capital items is estimated at Rs. 16.23 lakh crore.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">But it expects to incur a total expenditure of Rs. 22.17 lakh crore.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> Expenditure will thus overshoot income by about 36.5%, leaving a shortfall of Rs. 5.94 lakh crore.<\/span><\/li>\n<\/ul>\n<p><b>Fiscal deficit:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The fiscal deficit paints a more complimentary picture of government finances than necessary, because it counts both one-off receipts (from asset sales, recovery of loans etc) and recurring items (taxes) as part of the government\u2019s \u2018income\u2019.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">India\u2019s fiscal deficit in the past ten years (based on actuals) has hovered between 3.5% and 6.4% of nominal GDP.<\/span><\/li>\n<\/ul>\n<p><b>Borrowings:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The borrowing target for the year is closely watched by the bond market because the larger the government\u2019s loan-taking, the less room for other borrowers \u2014 companies, small businesses, individuals \u2014 to raise funds from India\u2019s relatively shallow bond market.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">By end-March 2018, the outstanding loans of the Central government are estimated to hit Rs. 82.32 lakh crore.<\/span><\/li>\n<\/ul>\n<p><b>Unproductive spending:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The bulk of the expenditure each year is absorbed by just three recurring items \u2014 interest payments, pensions and subsidies.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In the FY18 revised estimates, for instance, interest payments (by far the largest item of expense) were expected to absorb Rs. 5.3 lakh crore, pensions Rs. 1.5 lakh crore and subsidies Rs. 2.3 lakh crore.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Servicing interest payouts alone will take up 32% of the Centre\u2019s earnings this year, while pensions and subsidies absorb another 23%.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">With 23% allocated to State grants and 16% to defence expenditure, these repetitive expenses will effectively mop up 95% of the total Budget receipts.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In FY18, just 12% of the budget was defrayed in capital spending.<\/span><\/li>\n<\/ul>\n<p><b>Fiscal Responsibility and Budget Management (FRBM) Act<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> \u00a0<\/span><span style=\"font-weight: 400;\">Responsibility and Budget Management (FRBM) Act which enjoins the government to steadily tighten its fiscal and revenue deficits over the years, while reining in its debt-GDP ratio.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It must also ensure that its receipts grow at a far faster pace than expenses in future, so that the debt can be paid down.<\/span><\/li>\n<\/ul>\n<p><b>Progress on fiscal consolidation post-FY14:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">For starters, in the four fiscal years between FY14 \u00a0and FY18, the Centre\u2019s receipts have grown at a faster pace than its expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Centre\u2019s total receipts (excluding borrowings) have shot up by 50% between FY14 and FY18.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Total expenditure in the same period registered a slower 39% increase.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Even better, spending on interest, pensions and subsidies rose by a much lower 30%, thus freeing up room for other expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The reined-in deficit has meant lower recourse to borrowings in order to bankroll spending.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In FY14, as much as 32% of annual Budget spending came from borrowings, but by FY18 it was down to 27%.<\/span><\/li>\n<\/ul>\n<p><b>Conclusion:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It is important for government to stick to its path of \u00a0fiscal consolidation.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Why the fuss about fiscal deficit? Context: India\u2019s fiscal deficit in the past ten years (based on actuals) has hovered between 3.5% and 6.4% of nominal GDP. Expenses overshoot In FY18, the Centre\u2019s total income (as per the revised estimates) from taxes, non-tax revenues and capital items is estimated at Rs. 16.23 lakh crore. But&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/why-the-fuss-about-fiscal-deficit\/\">Continue reading <span class=\"screen-reader-text\">Why the fuss about fiscal deficit?<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-31363","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704796207},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/31363","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=31363"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/31363\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=31363"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=31363"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=31363"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}