7/5/2014 Bankers Adda: All about Fiscal Deficit

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All about Fiscal Deficit
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 dont 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 govts 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-
7/5/2014 Bankers Adda: All about Fiscal Deficit
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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.