{"id":32347,"date":"2023-02-05T06:21:10","date_gmt":"2023-02-05T00:51:10","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=32347"},"modified":"2025-04-19T10:45:02","modified_gmt":"2025-04-19T05:15:02","slug":"fiscal-deficit-targets-and-performance-of-government","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/fiscal-deficit-targets-and-performance-of-government\/","title":{"rendered":"Fiscal deficit targets and performance of government"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in news?<\/strong><\/li>\n<li><strong>News Summary: Fiscal deficit targets and performance of government<\/strong><\/li>\n<li><strong>What is the direction on fiscal deficit given in the Budget?<\/strong><\/li>\n<li><strong>Are allocations lower for some sectors?<\/strong><\/li>\n<li><strong>What needs to be done for growth?<\/strong><\/li>\n<li><strong>Can the govt. stick to fiscal consolidation?<\/strong><\/li>\n<li><strong>What lies ahead?<\/strong><\/li>\n<li><strong>Conclusion<\/strong><\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>Why in news?<\/strong><\/h2>\n<ul>\n<li>In the Union Budget for 2023-24, Government chose the path of relative fiscal prudence.<\/li>\n<li>It projected a decline in fiscal deficit to 5.9% of gross domestic product (GDP) in FY24, compared with 6.4% in FY23.\n<ul>\n<li>The fiscal deficit, in mathematical terms, is [<u>total revenue generated \u2014 total expenditure<\/u>].\u00a0<\/li>\n<li>It is an indication of the total borrowings needed by the government.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>News Summary: Fiscal deficit targets and performance of government<\/strong><\/h2>\n<ul>\n<li>While presenting the Union Budget 2023-24, Union Finance Minister said the government planned to continue on the path of fiscal consolidation.<\/li>\n<li>It <u>aims to reach a fiscal deficit below 4.5% by 2025-26<\/u>.<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What is the direction on fiscal deficit given in the Budget?<\/strong><\/h2>\n<p>&nbsp;<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/lh4.googleusercontent.com\/AYKFsVDnuDzAAZbhIu_mTbPHNrr0egbpBrHBOYsi_biGRYKp985dVKmi38Zr48d25UKV-QoAEdDjadukUd8G6UMo3RBNFVIKoSKAyEej9accB4l0KO8DBOSOYsCDXvbznYzt7wmeKJEFfVhleOFCHA\" alt=\"\" \/><\/p>\n<p>Image caption: Fiscal deficit roadmap<\/p>\n<ul>\n<li>In Union Budget 2023-24, the <strong><u>fiscal deficit<\/u><\/strong><u> to GDP is pegged at 5.9% in FY24<\/u>.\u00a0\n<ul>\n<li>This ratio has declined from 6.4% in 2022-23 (revised estimate) and 6.7% in 2021-22 (actual).<\/li>\n<\/ul>\n<\/li>\n<li>In Union Budget 2023-24, <strong>revenue deficit<\/strong> is 2.9% of GDP.\n<ul>\n<li>The revenue deficit was 4.1% of GDP in 2022-23 (revised estimate).<\/li>\n<\/ul>\n<\/li>\n<li>The <strong>primary deficit<\/strong>, which reflects the current fiscal stance devoid of past interest payment liabilities, is pegged at 2.3% of GDP in Union Budget 2023-24.\n<ul>\n<li>Primary deficit stood at 3% of GDP in 2022-23 (RE).\n<ul>\n<li>If interest payments are deducted from fiscal deficit, we get primary deficit.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Are allocations lower for some sectors?<\/strong><\/h2>\n<ul>\n<li>As seen from the following figure, the major allocations that have been pared down are food, fertilizer and petroleum subsidies.<\/li>\n<\/ul>\n<p><img decoding=\"async\" src=\"https:\/\/lh5.googleusercontent.com\/AAyPCdqbo1b3TND7-blgjt4keC9ezv5keFB9-bTZFT7F6btezPTfzqkD_SiF9IipoRhYNyC_Qm6MraJfq942gtYkF5zTIY4y5K0ny3lzKUoO8uRTIaY4gp3wg1V1LnZEuXxJwHAYgHikWk4fEJ9PXA\" alt=\"\" \/><\/p>\n<p>Image caption: Subsidy trend<\/p>\n<ul>\n<li>It is a laudable decision to extend food security to the poor for one more year amid rising inflation.\u00a0<\/li>\n<li>However, rationalisation of subsidies is important so that the government can move towards reaching a fiscal deficit target of 4.5% by 2025-26.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>What needs to be done for growth?<\/strong><\/h2>\n<ul>\n<li>Inflation hurts the poor. The interest rate management by the RBI through inflation targeting alone cannot effectively control inflation, given the supply side shocks.\u00a0<\/li>\n<li>Therefore, fiscal policy measures are crucial to tackle mounting inflation. Policy coordination between RBI and North Block is crucial for a sustained growth recovery process.<\/li>\n<li>The RBI has been increasing policy rates to tackle mounting inflation. But a high interest rate regime can hurt the economic growth process.\u00a0<\/li>\n<li>So, the fiscal policy needs to remain accommodative with focus on gross capital formation in the economy with enhanced capital spending, especially infrastructure investment.\n<ul>\n<li>Infrastructure investment has a larger multiplier effect on economic growth and employment.\n<ul>\n<li>In Budget 23-24, capital spending is expected to rise to 3.3% of GDP.\u00a0<\/li>\n<li>The interest-free loan of \u20b91.3 lakh crore for 50 years provided to States should help them spend and boost growth.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Can the govt. stick to fiscal consolidation?<\/strong><\/h2>\n<ul>\n<li>The predominant mode of financing fiscal deficit in India is through internal market borrowings.\u00a0\n<ul>\n<li>It is also to be financed through securities against small savings, provident funds and an insignificant component of external debt.\u00a0<\/li>\n<\/ul>\n<\/li>\n<li>In Union Budget 2023, <u>India\u2019s external debt is pegged at \u20b922,118 crore<\/u> of the total fiscal deficit of \u20b917,86,816 crore in 2023-24 (BE), which is approximately about 1%.\u00a0<\/li>\n<li>In Union Budget 2023, it is also stated that the <u>States will have to maintain a fiscal deficit of 3.5% of GSDP<\/u> of which 0.5% will be tied to power sector reforms.<\/li>\n<li>There are revenue uncertainties in post-pandemic times and also geopolitical risks, mounting inflation, supply chain disruptions and energy price volatility.<\/li>\n<li>Despite all this, it can be said that the Government has kept the fiscal policy accommodative and has undertaken capital spending to support economic growth recovery.<\/li>\n<li>In doing so, it has not deviated from the path of fiscal consolidation.<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>What lies ahead?<\/strong><\/h2>\n<ul>\n<li>The Finance Minister is focusing on economic growth recovery through capex. She contends that <u>infrastructure investment will boost private investment<\/u>.\u00a0<\/li>\n<li>In the fiscal deficit-GDP ratio, if the denominator GDP expands, it will reduce the overall fiscal deficit-GDP ratio. Her focus is on economic growth recovery to strengthen GDP.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Conclusion<\/strong><\/h2>\n<ul>\n<li>The Union Budget has a dual focus on growth and fiscal consolidation.\u00a0<\/li>\n<li>In other words, the government has tried to do a <strong>Goldilocks on the fiscal deficit<\/strong> &#8211; <u>not too much consolidation, nor leave everything related to consolidation for the future<\/u>.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1)\u00a0What is fiscal consolidation?<\/strong><\/h3>\n<p>Fiscal consolidation is defined as concrete policies aimed at reducing government deficits and debt accumulation. These consolidation plans and detailed measures are given as a per cent of nominal GDP. All measures are quantified to the extent possible.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2)\u00a0What is fiscal deficit?<\/strong><\/h3>\n<p>The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.thehindu.com\/business\/budget\/explained-is-the-government-on-track-on-fiscal-deficit-targets\/article66472080.ece#:~:text=The%20Government%20has%20not%20deviated,26%20from%20the%20current%206.4%25.\" target=\"_blank\" rel=\"nofollow noopener\"><u>Explained | Is the government on track on fiscal deficit targets?<\/u><\/a>\u00a0 <strong>|<\/strong>\u00a0 <a href=\"https:\/\/economictimes.indiatimes.com\/definition\/fiscal-deficit\" target=\"_blank\" rel=\"nofollow noopener\"><u>Economic Times<\/u><\/a>\u00a0 <strong>|\u00a0 <\/strong><a href=\"https:\/\/www.business-standard.com\/about\/what-is-fiscal-deficit\" target=\"_blank\" rel=\"nofollow noopener\"><u>Business Standard<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Union Budget 2023-24 has a dual focus on growth and fiscal consolidation.<\/p>\n","protected":false},"author":5,"featured_media":32348,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-32347","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/32347","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=32347"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/32347\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/32348"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=32347"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=32347"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=32347"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}