Fiscal Deficit

 

Fiscal Deficit

Fiscal deficit is the difference between the government's total expenditure and the total non debt creating receipts. Revenue receipts, recoveries of loan and other receipts are all non debt creating. The government doesn’t have to borrow to generate these sources of income. Revenue receipts include both tax and non tax revenue of the government of India. Tax revenue means revenue that government gets by collecting taxes like personal income tax, corporate tax and goods and services tax. Non tax revenue include stamp duty and dividends earned from public sector units. Dividend is the return on capital invested by the government in PSU’s. Fiscal deficit arises when the government has expenditure higher than the revenue it generates. To bridge this expenditure revenue deficit government starts borrowing. This borrowing is called Fiscal Deficit. Fiscal deficit is usually expressed in terms of percentage of the country’s Gross Domestic Product (GDP). A high and rising Fiscal deficit is bad for the general state of the economy, trade balance and currency exchange rates. A high fiscal deficit means that the governments borrowing are high. When the government borrows money from the general public , it creates demand for money. A high fiscal deficit can be dangerous it affect general economic activity it will reduce business and economic activity. It will reduce income and employment generation. It lead to reduction of exchange rates and rises the trade deficit.