Short Notes IAS CS365
Short Notes IAS Courses
Copy Notes Products
Home » Important News » Why is the fiscal deficit widening?

Why is the fiscal deficit widening?

The government’s fiscal deficit up to November came in at 112% of the amount budgeted for the entire financial year ending in March, prompting a number of commentators to predict that the government would miss its target for the year.

What does it mean?

The government missing its fiscal deficit target for the year means that either the revenue it collected fell short of projections, or that its expenditure was higher than planned. The data from the Controller General of Accounts shows that the government’s expenditure seems to be on track. That is, it has spent 68.9% of the amount budgeted for the year, with four months remaining. In other words, it has 31% of its budgeted expenditure left for the remaining 25% of the year.

The revenue side, however, seems to be where the issue is, at only 53% of the full-year target. Looking deeper, the data shows that the government’s non-tax revenue, at only 36.5% of the year’s target, is lagging behind last year’s performance, where it had earned 54.2% of that year’s non-tax revenue target by November.

Are there any other factors at play?

A few days ago, the government announced that it would be borrowing an additional ₹50,000 crore during the remaining part of the financial year. While it was assumed that this would lead to a slippage in the fiscal deficit, the government was quick to explain that this would not happen. In its statement, it explained that the additional borrowing would be offset by trimming down the collections from its Treasury Bills.

So, what was the actual effect?

While the effect of this extra borrowing on the fiscal deficit is yet to be determined, the news certainly had an effect on the bond market. According to news reports, the benchmark 10-year bond price fell to a nearly 17-month low, pushing its yield up by as much as 17 basis points. According to analysts, the bond market is still uncertain about the quantum of borrowing the government will do by the end of the financial year.

What is the government’s view on this?

Following the release of the October data, which showed the fiscal deficit at 96% of the full year’s target, the Chief Statistician of India, TCA Anant, had said that there was no need to worry and that the fiscal deficit was bound to go up during the year before coming down again towards the end. The main reason for this, he said, was the fact that the government had brought forward the date for the presentation of the Budget. Because of this, the government has been able to smoothen out its expenditure across the year, with more being spent in the first half of the year than was previously possible. At the same time, the revenue profile of the government in terms of direct tax has remained more or less the same.

Is a slippage such a bad thing?

According to former Chief Statistician Pronab Sen, even a 0.5% slippage in the fiscal deficit would be okay as long as it is being driven by an increase in expenditure on developmental activities such as rural roads, irrigation, and low-cost housing.

Even though ratings agency Moody’s recently upgraded India, it did say that it would be tracking the fiscal situation, so any significant slippages could result in a downgrade in the future.

Source :The Hindu

Receive the latest articles in your inbox

UPSC Telegram Channel Links

Disclaimer:- does not own this Materials, Test Series or anything we share, neither created nor scanned. we just providing the links already available on Internet. and also we doesn't Own any trademarks or copyrights of any institute like Vision IAS, Vajiram and Ravi, Gs Score, Insight IAS, IAS Baba, Forum IAS, Shankar IAS and others which we share are purely for Education purpose only and all copyrights and Trademarks lies with the respective Institutes/Comapanies only. We don't intend to either harm or encash your hard work, if any way you feel that our content violates any Copyrights or any privacy laws or if you have any issue, please let us know at [email protected] and we will definitely try to provide possible solution for the same. Thank you.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.