Fiscal Deficit Estimated to be 9.5% of GDP for FY 2020-21

Finance Minister Nirmala Sitharaman highlighted, while presenting the union budget for 2021-2022, that the fiscal deficit in the next financial year is estimated as 6.8 percent of the gross domestic product (GDP).

Highlights

  • The finance minister highlighted that the fiscal deficit is estimated to increase up to 9.5% in the Financial Year 2020-21.
  • The rise in the fiscal deficit is the result of the rise in the expenditure amid the ongoing COVID-19 pandemic and the moderation in revenue during the current fiscal year.
  • The minister further highlighted that the nationwide lockdown has adversely impacted the economic activities. It also resulted in the contraction of the economy by 7.7%.
  • The government had earlier projected a fiscal deficit of 3.5 years for the present financial year.
  • Minister further highlighted that the government proposes to bring cut down the fiscal deficit below 4.5% of GDP by the year 2025-26.
  • In order to curb the same, government is planning to borrow Rs 80,000 crore for rest of the 2 months in current financial year.

Fiscal Deficit

The difference between the total income of the government inclusive of the total taxes & non-debt capital receipts and the total expenditure of the government is called as the fiscal deficit. The situation of fiscal deficit occurs when the government’s expenditure exceeds its income. The fiscal deficit is calculated in both the absolute terms and the percentage of the Gross Domestic Product (GDP) of the country. If the fiscal deficit is recurring that means the government is spending beyond its means. It is calculated by the formula:

“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 for the creation of productive assets such as highways, roads, ports and airports. It will help in boosting the economic growth and ultimately leads to job creation.

How Fiscal Deficit can be minimized?

The fiscal deficit can be minimized by borrowing money. Usually, the borrowing requirements of the government in any financial year is equal to the fiscal deficit of that year.

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