Editing Content :: Admin Scraper

Chapter

Content type

Position

Value

eventually, to cut expenditure. Since a major part of revenue expenditure is committed expenditure, it cannot be reduced. Often the government reduces productive capital expenditure or welfare expenditure. This would mean lower growth and adverse welfare implications. Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts) Non-debtcreatingcapitalreceiptsarethosereceiptswhicharenotborrowings and, therefore, do not give rise to debt. Examples are recovery of loans and the proceedsfromthesaleofPSUs.FromTable5.1wecanseethatnon-debtcreating capital receipts equals 9.4 per cent of GDP , obtained by subtracting, borrowing and other liabilities from total capital receipts [1+4(a)+4(b)]. The fiscal deficit, therefore turn out to be 5.6 per cent of GDP . The fiscal deficit will have to be financed through borrowing. Thus, it indicates the total borrowing requirements of the government from all sources. From the financing side Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad Net borrowing at home includes that directly borrowed from the public through debt instruments (for example, the various small savings schemes) and indirectly from commercial banks through Statutory Liquidity Ratio (SLR). The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy. From the way gross fiscal deficit is measured as given above, it can be seen that revenue deficit is a part of fiscal deficit (Fiscal Deficit = Revenue Deficit + Capital Expenditure - non-debt creating capital receipts). A large share of revenue deficit in fiscal deficit indicated that 72 a large part of borrowing is being used to meet its consumption i expenditure needs rather than investment. o o Primary Deficit: We must note that the borrowing requirement of the o government includes interest obligations on accumulated debt. The goal a of measuring primary deficit is to focus on present fiscal imbalances. M r To obtain an estimate of borrowing on account of current expenditures c exceeding revenues, we need to calculate what has been called the d primary deficit. It is simply the fiscal deficit minus the interest payments t I Gross primary deficit = Gross fiscal deficit – Net interest liabilities Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending. Box 5.1: Fiscal Policy One of Keynes’s main ideas in The General Theory of Employment, Interest and Money was that government fiscal policy should be used to stabilise the level of output and employment. Through changes in its expenditure and taxes, the government attempts to increase output and income and seeks to stabilise the ups and downs in the economy. In the process, fiscal policy creates a surplus (when total receipts exceed expenditure) or a deficit budget (when total expenditure Reprint 2026-27