What are the hurdles faced by the Finance Ministers of India in keeping the fiscal deficit below 3-4 percent of the GDP? Suggest steps to lower the fiscal deficit.

March 6, 2023 February 22, 2024

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. The last half of the 90s has indicated higher fiscal deficit and its increase year by year.

Reasons responsible for fiscal deficit, beyond the control of the Finance Ministers, are:

Higher expenditure of salaries and allowances after the implementation of the fifth pay commission.
Higher interest payment on debts and loans of the Government.
No increase in revenue in proportion to the expenditure.
No control over deficit.
Reduction in the rate of taxes.

Due to these reasons Finance Ministers could not control fiscal deficits below 3-4 percent.

Suggested measures are:

To reduce expenditure of administration.
To increase income from revenue by widening tax base.
To tax upon the agriculture and other commodities henceforth excluded, though at the minimum rate.
To make the tax collection machinery efficient.
To disinvest the PSUs running in losses.
To efficiently collect payments for services provided by the Government.

Topics: GS-III: Mobilization of Resources