Fiscal Deficit Widening
GS PAPER 3
(INDIAN ECONOMY)
THE HINDU EDITORIAL ANALYSIS
SUMMARY:-
The widening fiscal deficit of the Indian government, spurred by increased transfers to states and a surge in capital expenditure, poses challenges for achieving targeted GDP proportions and requires recalibration of deficit reduction strategies amidst uncertain economic conditions and potential spending shortfalls.
WHAT IS FISCAL DEFICIT?
Fiscal deficit refers to the difference between a government's total revenue and its total expenditure in a fiscal year. It indicates the amount of borrowing required by the government to meet its expenditure when revenue falls short. This deficit is often expressed as a percentage of the country's Gross Domestic Product (GDP). It is a crucial measure of a government's financial health and its ability to manage its budget effectively.
IMPORTANT POINTS FROM THE ARTICLE
Sharp Increase in Fiscal Deficit: The fiscal deficit of the Indian government has surged from ₹11 lakh crore in January to ₹15 lakh crore by the end of February, representing a significant rise within 29 days.
Comparison with Previous Year: The trajectory of fiscal deficit growth mirrors that of the previous year, where the deficit reached 86.5% of the revised target of ₹17.3 lakh crore by February.
Factors Contributing to February Deficit: The increase in fiscal deficit in February is attributed to higher transfers to states, totaling around ₹2.15 lakh crore, compared to ₹1.4 lakh crore the previous year. Additionally, there has been a substantial rise in capital expenditure, reaching ₹84,400 crore, over four times the previous year's outlay.
Targeted Deficit and GDP Proportions: The original fiscal deficit target was set at 5.9% of GDP but was revised to 5.8% in the interim Budget. The government aims to narrow it down to 4.5% by 2025-26, with a target of 5.1% for 2024-25.
Future Recalibration and Challenges: The government's glide path for deficit reduction may require recalibration based on future priorities and economic conditions. Challenges such as high inflation, poor monsoon, and uneven consumption demand could affect the trajectory of deficit reduction.