Published: 15-02-2021

The month of February brings in financial vibes and the financial analyst within us has alerted eyes and ears to grab the very first peek of the Union Budget. Honorable Finance Minister Nirmala Seetharaman unveiled the Union Budget for 2021-22 on 1st February 2021.One of the most important growth aspect for any country is to keep a check of the fiscal deficit .To comprehend this from a layman’s point of view, let us first understand what is fiscal deficit.

The term “Fiscal Deficit” comprises of two words-Fiscal meaning relating to government revenue and deficit meaning a shortfall or shortage. So ideally Fiscal Deficit can be defined as the difference between the revenue generated and the expenditure incurred by the government of any country. The major sources of revenue being taxes (income tax, corporate tax, GST and other kind of tax levied from time to time).The non-tax based sources of revenue being interest income dividends etc. This source of revenue has many other components which can be counted on time-to –time basis. On the other hand government expenditure include capital expenditure, revenue payments, interest payment etc. So Fiscal Deficit can be summed up as the difference of these two big heads.

While analyzing the Fiscal Deficit is important, the fact that having Fiscal Deficit in itself, doesn’t makes a country to be economically unstable or unsound. On the contrary it indicates on the developmental aspects like onboarding and executing new projects like infrastructural development, industrial growth etc. This indicates that though there is a deficit as of now, but the expenditure incurred will fetch the desire revenue in the coming years.

The Fiscal Deficit of India for the upcoming financial year 2021-2022 has been targeted at 6.8%, improving from the 9.5% figure of 2020-2021.Finance Ministry has also aimed at bringing this figure down to 4.5% by the year 2025-26.Initially this figure was 3.5% for 2020-2021 but given the global pandemic of Covid-19 and its impacts, this figure shot upto 9.5%.The pandemic not only has hit on the revenue flow owing to the lockdown and the complete shutdown of many business activities, but also high governmental spends to make provisions for the less-privileged sections of the society.

The Finance Ministry is very serious and positive about reducing this deficit from 9.5% and bringing it to 6.8 for the upcoming financial year 2021-22.This planning is based on the fact that though the year 2020 was a year of globally recognized financial crunch, but things are taking an encouraging turn and people are optimistic about good things to happen. Projections say that over the next four years real GDP growth is supposed to be at a pace of 5-6 %, nominal GDP will be at-least 11% per year thus making it 44% of the present day’s figures and inflation at 4-5%.Keeping our fingers crossed if these parameters fall in place, we will land-up at the expected figure of 4.5% by 2026.

“The enhancement of “budget transparency” with regard to deficit numbers, presented in the 2021-22 Union Budget, is welcome. The Food Corporation of India’s borrowing from the National Small Savings Funds will be stopped to bring in budget transparency. When FY21 fiscal deficit has reached 9.5%, the government envisions to borrow another Rs 80,000 crore in the next two months. The gross market borrowing will be Rs 12 lakh crore, which is 68.9% of total borrowings. The other sources of financing like National Small Savings Fund constitutes around 26%.”-Says THE WIRE (Analysis/Economy section) dated 01.02.2021.

Sources

• https://groww.in/blog/understanding-the-concept-of-fiscal-deficit/
• https://economictimes.indiatimes.com/news/economy/finance/confident-of-reducing-fiscal-deficit-to-4-5-of-gdp-by-fy26-exp-secy/articleshow/80733196.cms
• https://www.thehindu.com/business/budget/union-budget-2021-govt-plots-fiscal-deficit-reduction-from-95-in-fy21-to-45-by-fy26/article33720765.ece