FISCAL DEFICIT REPORT (Syllabus: GS Paper 3 - Economy)

Context: Recently, due to a noticeable increase in capital expenditure and higher subsidies allocated to fertilizers, the Union government's fiscal deficit for April-September expanded to 7.02 lakh crore, which is 39.3 percent of the full-year target of 17.87 lakh crore, in contrast to 6.43 lakh crore in April-August.

• The fiscal position of the Central Government has been fairly comfortable during the first half of the current fiscal despite economic headwinds.

Fiscal Deficit

• About: It is the gap between the government's overall income (including taxes and non-debt capital receipts) and its total expenditure.
• Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts).
• Causes of fiscal deficit arise: When government spending surpasses its income.

o It represents the extent to which the government has spent more than its earnings, usually presented as a percentage of the GDP.

• The Fiscal Responsibility and Budget Management (FRBM) Act was established in 2003, aiming to establish targets for reducing fiscal deficits.
• Reviewing the FRBM Act: In May 2016, the government set up a committee under NK Singh to review the FRBM Act. The government believed the targets were too rigid. 
• Recommended fiscal deficit target: The committee recommended that the government should target a fiscal deficit of 3 percent of the GDP in the years up to March 31, 2020 cut it to 2.8 per cent in 2020-21 and to 2.5 per cent by 2023.