Fiscal Deficit

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government.

The fiscal deficit can arise either due to revenue expenses overshooting income or increase in capital expenditure.

A fiscal deficit is usually calculated and expressed as a percentage of a country’s Gross Domestic Product (GDP).

A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

In India, the Fiscal Responsibility and Budget Management Act suggests that bringing the fiscal deficit down to about 3 percent of the GDP is the ideal target.

However, successive governments have not been able to achieve this target.