Definition of 'Fiscal Deficit: When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings).
Now let us understand what Revenues and expenditures are :
Every
family needs to plan their budget so that they don’t go in to the
deficit trap. In ideal conditions revenues should always exceed the
expenditures.
How revenues are generated:
Tax Revenues:
These are those revenues that are generated through the taxes levied on
public such as Income Tax, Corporate Tax, Wealth Tax, Fringe benefit
taxes (these all are direct taxes i.e. levied on the individual
directly), there are some other taxes which in turn are sources of govt.
revenues such as, VAT, custom duty, excise duty, service tax (these are
types of indirect taxes).
Grants and aids:
India enjoys a special love of nature resulting in floods, droughts,
lovely Tsunamis (lol), cyclones etc etc etc… So India gets different
Grants and Aids from the World banks, ADBs, big boy US, or anybody who
wishes to help.
Fines and Penalties:
remember that traffic walle bhaiya, sometimes he refuses your chai
paani k lie lelo help, All those times the income goes in to govt’s
pockets.
Expenditures:
As
India is a developing country here Ameer is more Ameer and Gareeb is
more Gareeb concepts follow so Govt. has to spend on the different Rajiv
Gandhis, Mahatma Gandhis and Pradhan mantris scheme(MNERGA,JNNURAM,PDS
schemes etc..).
India
is lucky with some peaceful neighbors in the vicinity so India has to
spend a chunk of revenues for Defense (Unplanned expenditure).
FRBM Act(Fiscal Responsibility and Budget Management act):
As
per the target, revenue deficit, which is revenue expenditure minus
revenue receipts, have to be reduced to nil in five years beginning
2004-05. Each year, the government is required to reduce the revenue
deficit by 0.5% of the GDP.
How Fiscal Deficit is harmful-
Debt Trap-Fiscal
deficit is a type of Debt trap, It creates a deficit which can be
filled by extra borrowings or increased taxes creating burden on economy
or extra debt
Inflation- The
money released by the govt. for different schemes never reaches to the
needy and is transferred to the pockets of middlemen who can now buy a
new merc or chunks of gold which leads to inflation.
Black money-
Now the money that is with the bribe masters cannot be in India because
of Income tax officials’ fear so they are transferred to Tax heavens
i.e. so called Swiss Banks, this create a shortfall of Taxes in India
creating a poor Tax collection.
How Fiscal Deficit is not harmful-
Fiscal
deficit occurs when govt. spends more in the fiscal year as compared to
the revenues generated in the period, If all that Yojanas mentioned
earlier turnout to be a success will create more employment, better
health of the people, better infrastructure and will eventually leads to
a prosperous economy, that will help to curb the Financial Deficit in
the coming years.
