According to the experts, the Budget 2024-25 lowers fiscal deficit target to boost the investor Confidence. The government has set its fiscal deficit target for FY25 at 5.1% of GDP.
GS-3 Indian Economy
Dimensions of the Article:
- Fiscal deficit target for FY25
- What is fiscal deficit?
Fiscal deficit target for FY25:
- The Indian government will lower its debt level and the fiscal deficit is to be cut to 5.1% of gross domestic product in FY25, from 5.9% in FY24.
- The finance minister also said the fiscal deficit estimate for FY24 has been revised to 5.8% of GDP, from the 5.9% estimated earlier for the financial year.
- Boost Investments:
- The assurance from the government will help investors’ confidence.
- It will improve fiscal stability as the move will ensure that sovereign yields are range-bound.
Centre’s fiscal consolidation strategy:
- The use of technology in tax administration
- Information-driven voluntary compliance,
- Greater formalisation of the economy,
- Expanding the scope of taxes deducted or collected at source,
- Growing tax base, and economic growth
What is fiscal deficit?
- It is the difference between the Revenue Receipts plus Non-debt Capital Receipts (NDCR) and the total expenditure.
- In other words, fiscal deficit is a result of the government’s total expenditures exceeding the revenue that it generates, excluding money from borrowings.
- A significant fiscal deficit can lead to a higher national debt and increased costs related to debt servicing.
- This can adversely affect the economy, potentially devaluing the national currency and hindering private sector investments.
What is the significance of 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.
- So, simply put, a higher fiscal deficit means higher borrowing by the government, which, in turn, mean higher interest rates in the economy.
- 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.