• UGI USER
  • Jul 24, 2024
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“GOVERNMENT LOWERS FISCAL DEFICIT, FOCUSES ON DEBT RATIO”

Why in the news?

  • Fiscal deficit target for FY25 cut to 4.9% of GDP from 5.1% in interim Budget.
  • FY24 fiscal deficit stands at 5.6% of GDP, lower than the revised estimate of 5.8%.
  • Government aims to reduce the fiscal deficit below 4.5% by FY26-27.
  • Government prioritising debt-GDP ratio over fiscal deficit figures.
source:indianexpress

About Fiscal Deficit:

  • Fiscal deficit: Shortfall when government expenditure exceeds revenue.
  • Requires borrowing or asset sales to fund the deficit.
  • Main revenue source: Taxes (expected Rs 26.02 lakh crore in 2024-25).
  • Total revenue estimated at Rs 30.8 lakh crore for 2024-25.
  • Fiscal surplus: Rare, occurs when revenues exceed expenditure.
  • Focus: Controlling fiscal deficit, not balancing the budget.

Key Formulas:

  • Fiscal Deficit: Total Expenditure – Total Receipts (excluding borrowings)
  • Revenue Deficit: Total Revenue Receipts – Total Revenue Expenditure
  • Debt to GDP Ratio: Total Debt of Country / Total GDP of Country
Legislation Related to Fiscal Management in India:

  • Fiscal Responsibility and Budget Management (FRBM) Act: Instituted in 2003 to reduce debt.
  • Target: General government debt to 60% of GDP by 2024-25.
  • Current Status: Centre’s debt exceeded original targets.
  • FRBM Review Committee: Recommended a 60% debt-to-GDP ratio by 2023.
  • Breakdown: 40% for Central Government, 20% for State Governments.
  • Deviation: Subsequent fiscal paths did not adhere to these targets.

Associated Article:

https://universalinstitutions.com/indias-fiscal-deficit-for-fy24-lower-than-revised-estimate/