▪️Aims to bring it back below the 4.5% mark by 2025-26.
◾️The deficit has shot up to a high of 9.5% of the GDP due to:
▫️Impact of the COVID-19 pandemic.
▫️Low revenue flows due to the lockdown.
▫️Negative economic growth clubbed with high government spending to provide relief to vulnerable sections of society.
◾️What next?
Finance minister has also proposed to introduce amendments to the FRBM Act to make necessary change in the fiscal consolidation roadmap.
◾️What is fiscal deficit?
▫️Difference between the Revenue Receipts plus Non-debt Capital Receipts (NDCR) and the total expenditure.
▫️In other words, fiscal deficit is “reflective of the total borrowing requirements of Government”.
◾️Impact of high fiscal deficit:
▫️In the economy, there is a limited pool of investible savings. These savings are used by financial institutions like banks to lend to private businesses (both big and small) and the governments (Centre and state).
▫️If the fiscal deficit ratio is too high, it implies that there is a lesser amount of money left in the market for private entrepreneurs and businesses to borrow.
▫️Lesser amount of this money, in turn, leads to higher rates of interest charged on such lending.
▫️A high fiscal deficit and higher interest rates would also mean that the efforts of the Reserve Bank of India to reduce interest rates are undone.
◾️What is the acceptable level of fiscal deficit for a developing economy?
▫️For a developing economy, where private enterprises may be weak and governments may be in a better state to invest, fiscal deficit could be higher than in a developed economy.
▫️In India, the FRBM Act suggests bringing the fiscal deficit down to about 3 percent of the GDP
◾️What is the the FRBM Act?
▫️The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes financial discipline to reduce fiscal deficit.
◾️What are the objectives of the FRBM Act?
▫️To introduce transparency in India’s fiscal management systems.
▫️Long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India.
▫️The Act was enacted to introduce more equitable distribution of India’s debt over the years.
◾️Key features of the FRBM Act:
▫️The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:
•Medium Term Fiscal Policy Statement.
•Macroeconomic Framework Statement.
•Fiscal Policy Strategy Statement.
Source - PIB
0 comments:
Post a Comment