09-02-2021 | 14:54 PM
Government aims to cut fiscal deficit to 4.5% By FY 2025-26
Context
Finance Minister Nirmala Sitharaman has pegged the fiscal deficit for 2021-22 at 6.8% of the Gross Domestic Product (GDP) and aims to bring it below the 4.5% mark by 2025-26.
Key Highlights
Earlier, the government had projected a fiscal deficit of at Rs. 7.96 lakh crore or 3.5% of GDP for the present financial year.
The finance minister highlighted that the fiscal deficit is estimated to increase up to 9.5% of the GDP.
The rise in the fiscal deficit is the result of the rise in the expenditure amid the ongoing COVID-19 pandemic, Low revenue flows due to the lockdown and Negative economic growth clubbed with high government spending to provide relief to vulnerable sections of society.
Finance Minister Nirmala Sitharaman further highlighted that the nationwide lockdown had adversely impacted the economic activities which resulted in the contraction of the economy by 7.7%.
In order to curb the fiscal deficit, the government is planning to borrow Rs 80,000 crore for the rest of the 2 months in the current financial year.
The fiscal deficit can be reduced by borrowing money.
Usually, the borrowing requirements of the government in any financial year is equal to the fiscal deficit of that year.
About Fiscal Deficit
The government describes fiscal deficit of India as “the excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year”.
Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts).
Sometimes, a high fiscal deficit can also be good for the economy if the money spent is used to create productive assets such as highways, roads, ports and airports. It will help in boosting economic growth and ultimately leads to job creation.
