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Trends in India’s budget and fiscal deficits

Budgetary deficit cannot depict a true picture of the financial health of the economy. Initially budgetary deficit was calculated to show RBI lending to the Government. By introducing ad-hoc treasury bills in 1991, the practice of RBI lending to Government was given up. It is no longer shown in the budgetary statement. The Government now shows 91 days treasury bills as a part of capital receipts under the heading “borrowings and other liabilities”. On the other hand, Fiscal deficit measures the total resource gap and reflects the impact of fiscal operations of the indebtedness of the Government and hence is a more comprehensive measure of imbalances.
In India, Fiscal deficit has grown rapidly. In the period of 1975-90, it rose rapidly from 4.1% to 7.9% of GDP due to unchecked growth of non-planned revenue expenditure. In 1991, steps were taken to correct fiscal imbalances and thus, fiscal deficit was reduced to 4.7% in 1991-92 and to 4.1% in 1996-97.The fiscal deficit again started to increase in 1997-98.It was at 6.5% in 2009-10 (See chart 1)
Fiscal Responsibility and Budget Management (FRBM) bill was introduced in 2000 and FRBM Act was passed in 2003 in order to restore fiscal discipline. The Act aimed at reducing the gross fiscal deficit by 0.5% of GDP in each financial year beginning on April 1, 2000. As a result of the efforts taken, fiscal deficit started declining. It was:
  • 4.5% in 2003-04
  • 3.3% in 2006-07
  • 2.5% in 2007-08
World-wide financial crisis also affected the Indian economy. This led to a decline in the demand for exports and the local demand also shrank leading to a downturn in industry and service sector. This situation demanded a fiscal response and there was an upsurge in fiscal deficit to 6.5% of GDP during 2009- 10 when compared to 2.5% in 2007-08.



  • The fiscal year starts from 1st April and ends on 31st March of the next year
  • Annual financial statements are required to be placed before both the houses of the Parliament
  • Gross Domestic Product (GDP) refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country’s standard of living; GDP per capita is not a measure of personal income. It is not to be confused with Gross National Product (GNP) which allocates production based on ownership. Gross domestic product is related to national accounts  

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