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Budget And Fiscal Deficits

Meaning Of Budget And Fiscal Deficits

The Government of India, every year prepares budget, which shows the expected receipts and expenditures of the government in the coming financial year. Receipts of the government come from taxes (both direct and indirect), profits from various financial institutions, government commercial undertakings, interest from loans given to other governments, local bodies, etc. and expenditure of the government are on developmental projects such as construction of roads, railways, production of energy and non–developmental expenditure on a large number of activities such as defence 
subsidies, police, law and order, etc. activities. If receipts are equal to expenditure, the budget is said to be balanced one. If receipts are higher than the expenditure, the budget is said to be surplus one and if receipts are lower than the expenditure, the budget is said to be deficit one.


Budget deficit is thus the difference between total receipts and total expenditure. It borrowings and other liabilities are added to the budget deficit, we get fiscal deficit.


Fiscal deficit, thus measures that part of government expenditure, which is financed by borrowings.

Trends In India’s Budget And Fiscal Deficits

Fiscal deficit in India have grown rapidly. In the fifteen year period of 1975–90, the fiscal deficit of the Central Government rose alarmingly from 4.1 per cent of GDP to 7.9 per cent of GDP. The then present fiscal malaise has been caused by unchecked growth of non-planned revenue expenditure. To restore fiscal discipline, the Fiscal Responsibility and Budget Management (FRBM) Bill was introduced in 2000 and FRBM Act was passed in 2003. The Act aims at reducing gross fiscal deficit by 0.5 percent of the GDP in each financial year (beginning on April 1, 2000). As a result of the efforts taken, the fiscal deficit as a proportion of GDP has started declining. During 2003–04, it was 4.5 per cent and during 2004–05 and2005-06 it was 4.1 per cent and during 2006-07 it was to be 3.3 % of GDP.2.5% in 2007-08.

External Debts In India


External assistance to India has been in two forms – grants and loans. While grants do not involve any repayment obligation, loans carry an obligation to pay interest and repay the principal. About 90 per cent of the external assistance received by India has been in the form of loans. These loans have been from different sources like World Bank, International Monetary Fund (IMF), International Development Association, U.S.A., U.K., Japan, etc. A large part of the loan, especially from multilateral and bilateral agencies has high degree of concession ability i.e. grant element of at least 25 per cent. The share of concessional debt in total debt is about 33.3 per cent. At one time (1980–81) it was as high as 75 per cent. India’s external debt amounted to Rs. 13,470 crore at the end of March, 1981. As liberal use of borrowing has been made every since then, the external debt stood at more than Rs. 4,80,000 crore in March, 2001–02 and nearly Rs. 12,00,000 crore in June 2010.

As per cent of GDP, India’s external debt was 11.7 per cent in 1990–91, it became 21 per cent in 2001–02 but then it declined to 18 per cent in end of 2010. Debt-service payments (i.e. returning of principal and interest) as a percentage of current receipts was as high as 35.3 per cent in 1990–91, but it declined to 13.7 per cent in 2001-02 and further to 5.5 per cent in 2009–10.

In the term of indebtedness, India’s debt has decreased since 1999. India ranks third among the top 15 debtor countries in the world according to the Global Development Finance 1991, (World Bank).Its rank was ninth in 2001 and fifth in 2008.

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