Engineer's Finance

I was going through the budget and this term was used quite frequently. I was perplexed and hence thought let me find more details about it.

These are the economic terms the economists use to scare the common man. In simple words it is a gap between the expenditure and the income. The gap between the government’s income and expenditure is known as Fiscal Deficit. The government’s borrowing is not considered as income. Generally the fiscal deficit can be financed from the Reserve Bank of India (which is referred to as Deficit financing or money creation) or from the market borrowing (primarily from the banks).

I have got my own questions to be answered. Why does the government keep the fiscal deficit? Can’t it ensure that it spends less or earn more to keep the gap less? Government has various resources with which it can earn money, why is it not doing to reduce the fiscal deficit? Moreover why does the government keep paying the interest on the borrowings when it can afford to close the account?

As I noticed in this year’s budget, the fiscal deficit is all time high i.e. at record 6.8%, in borrow-and-spend Budget. All Budgets since the economic reforms began in 1991 have seen lower deficits. To finance this, the finance minister Pranab Mukherjee has resorted to even more market borrowing, which has quadrupled from the Rs 1,00,571 crore that P Chidambaram had postulated in his Budget for last year, to Rs 3,97,957 crore.

The Budget papers contain a promise that the deficit will be cut to 5.5 per cent next year, and 4 per cent the year after. Now the important question is, where the money is coming from and where is it going? The government is trying very hard to improve the financial situation of the country and help the poor people to raise their income levels but I am not sure how much of it is going to reach the actual people. This is the first Budget to cross the Rs 10,00,000 crore figure. It is a huge amount of money in any way and still we are not sure of how the economy is going to behave.

Hope the economy will get better and we all get good benefits in the future.