BHARTI VIDYAPETH INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

WILL THE BUDGETED FISCAL DEFICIT BE ACHIEVED IN THE YEAR 2012-13

SUBMITTED TO:

Farooq Mistry
GROUP MEMBERS: Mandar Datar Kritika Ojha Preeti Dongre Rushikesh Shah Jayati Shrivastava Neha Singh Siddesh Sutar (08) (29) (39) (46) (51) (52) (55)

What is Fiscal Deficit?

Fiscal deficit is an economic phenomenon, where the governments total expenditure surpasses the revenue generated. It is the difference between the government's total receipts (excluding borrowing) and total expenditure. It gives signal to the government about the total borrowing requirements from all sources. In India, the fiscal deficit is financed by obtaining funds from RBI , called deficit financing and obtaining funds from the money market.

Definition of 'Fiscal Deficit'

When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.

Investopedia explains 'Fiscal Deficit'

A fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

When to control Fiscal Deficit?

Running a fiscal deficit and increasing government debt can initially stimulate economic activity only when a country's output (GDP) is below its potential output. But when an economy is running near or at its potential level of output, fiscal deficits can cause high inflation. At that point Fiscal Deficit must be controlled.

Measures to control Fiscal Deficit

The government should not delay disinvestment process. Fiscal deficit can be reduced by bringing up revenues or by lowering expenditure. Withdrawing few concessions given in direct and indirect taxes. Rationalization of expenditure, augmentation in revenue, disinvestment of public sector undertaking, enhancing the efficiency of funds spent on various flagship programs like NREGA among others.

Fiscal deficit target of 5.1% difficult to meet

Considering the absence of a clear fiscal roadmap and the still uncertain global environment the economist have described the 5.1 per cent fiscal deficit target for the next fiscal as an uphill task. The deficit target will most likely overshoot by 20-40 bps to 5.3-5.5 per cent as the projected revenue increase and subsidy cuts may not materialize. Fiscal slippages are likely to come from non-tax revenues and subsidy fronts. Increasing indirect taxes, divestment target and spectrum receipts and cutting subsidies will not be sufficient, The Finance Minister announced various fiscal reforms, the timing of the implementation of key reform measures such as GST, DTC, and targeted direct subsidy remains uncertain. Also, deficit is likely to remain high, as uncertainty surrounds the path to subsidy consolidation and to lowering the fiscal vulnerability to volatile commodity prices. The nominal GDP growth will exceed the ratio of government deficit to GDP next fiscal. Debt-to-GDP ratio might fall to 74.7 percent in FY 2013, from 74.9 percent in FY2012. But large public funding programmes, with new market borrowing of Rs 4.8 trillion, will put some pressure on financial markets, adversely affecting recovery. With slippages on revenue and expenditure fronts, deficit of FY 2013 is being missed by over 40 bps, to 5.5 percent".
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Conclusion
Achieving 5.1 percent fiscal deficit target will be tough, given the tepid growth in the country as well outside. The Budget has not exactly put a leash on expenditure but has tried to rationalize subsidies on fertilizers and oil, though one needs to see if they do work out at the end of the day.