Budget 2018: Fiscal deficit number to be close to target of 3.2% of GDP

Primary deficit: Silver lining in govt's efforts to contain fiscal deficit

Primary Deficit

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Primary deficit in Q1 over ten times of Budget target at Rs 3 lakh cr

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	Primary deficit refers to the difference between the current year&#39;s fiscal deficit and interest payment on previous borrowings. It indicates the borrowing requirements of the government, excluding interest. It also shows how much of the government&rsquo;s expenses, other than interest payment, can be met through borrowings.</div>
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	Primary deficit can be calculated by finding the difference between current year&rsquo;s fiscal deficit and interest payment on the borrowings for the previous year.</div>
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	<strong>What is the difference between primary deficit and fiscal deficit?</strong></div>
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	Primary deficit indicates the amount of borrowing which the government needs excluding the interest component. Fiscal deficit, on the other hand, is the difference between the government&#39;s total expenditure and total income. In other words, primary deficit is the difference between the government&rsquo;s income-expenditure gap and its interest payment on previous borrowings.</div>
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	<strong>How is primary deficit calculated?</strong></div>
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	Primary deficit can be calculated by deducting interest payments for the borrowings from the current year&rsquo;s fiscal deficit. Fiscal deficit can be calculated by finding the difference between the total income and total expenditure of the government.</div>

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What is Primary Deficit, News, Budget 2020 News, Primary Deficit Definition

What is Primary Deficit

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	A country&rsquo;s fiscal balance is measured by its government&rsquo;s revenue vis-a-vis its expenditure in a given financial year. Fiscal deficit, the condition when the expenditure of the government exceeds its revenue in a year, is the difference between the two. Fiscal deficit is calculated both in absolute terms and as a percentage of the country&rsquo;s gross domestic product (GDP).</div>
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	The fiscal deficit of a country is calculated as a percentage of its GDP or simply as the total money spent by the government in excess of its income. In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.</div>
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	In her maiden Union Budget, Finance Minister Nirmala Sitharaman had revised the government&rsquo;s fiscal deficit target for 2019-20 to 3.3 per cent of GDP, 10 basis points lower than the target for the previous financial year.</div>
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	<strong>How is fiscal deficit calculated?</strong></div>
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	The fiscal deficit, in mathematical terms, is [total revenue generated &mdash; total expenditure]. The total revenue is the sum of revenue receipts, recovery of loans and other receipts of the government.</div>
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	While most countries continue to project a deficit in their economies, a surplus is a rare phenomenon. A high deficit at times also emerges if the government is spending on developmental works like construction of highways, ports, roads, airports which will later generate revenue for the government.</div>
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	<strong>What are components of the fiscal deficit calculation?</strong></div>
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	The fiscal deficit calculations are based on two components &mdash; income and expenditure.</div>
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	Income component: The income component is made of two variables, revenue generated from taxes levied by the Centre and the income generated from non-tax variables. The taxable income consists of the amount generated from corporation tax, income tax, Customs duties, excise duties, GST, among others. Meanwhile, the non-taxable income comes from external grants, interest receipts, dividends and profits, receipts from Union Territories, among others.</div>
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	Expenditure component: The government in its Budget allocates funds for several works, including payments of salaries, pensions, emoluments, creation of assets, funds for infrastructure, development, health and numerous other sectors that form the expenditure component.</div>
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	<strong>How is fiscal deficit balanced out?</strong></div>
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	While a rising deficit is a challenge for the government in the long term, to balance it out in short-term macroeconomics, the government looks at market borrowings by issuing bonds and selling them in through banks. Banks buy these bonds with currency deposits and then sell them to investors. Government bonds are considered an extremely safe investment instrument, so the interest rate paid on loans to the government represents risk-free investment.</div>
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	The government also sees a deficit situation as an opportunity to expand policies and schemes, including welfare programmes, without having to raise taxes or cut spending in the Budget.</div>

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What is Fiscal Deficit, Fiscal Deficit News, Budget 2020 News, Fiscal Deficit Calculation

Fiscal Deficit

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	Fiscal policy, in simple terms, is an estimate of taxation and government spending that impacts the economy.</div>
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	<strong>Types of fiscal policy</strong></div>
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	There are two types of fiscal policy:</div>
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	<strong>Expansionary fiscal policy:</strong> This policy is designed to boost the economy. It is mostly used in times of high unemployment and recession. It leads to the government lowering taxes and spending more, or one of the two. The aim is to stimulate the economy and ensure consumers&#39; purchasing power does not weaken.</div>
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	<strong>Contractionary fiscal policy: </strong>As the term suggests, this policy is designed to slow economic growth in case of high inflation. The contractionary fiscal policy raises taxes and cuts spending.</div>
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	<strong>What are the tools of fiscal policy?</strong></div>
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	There are two key tools of the fiscal policy:</div>
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	<strong>Taxation:</strong> Funds in the form of direct and indirect taxes, capital gains from investment, etc, help the government function. Taxes affect the consumer&#39;s income and changes in consumption lead to changes in real gross domestic product (GDP).</div>
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	<strong>Government spending: </strong>It includes welfare programmes, government salaries, subsidies, infrastructure, etc. Government spending has the power to raise or lower real GDP, hence it is included as a fiscal policy tool.</div>
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	<strong>Fiscal policy objectives</strong></div>
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	Some of the key objectives of fiscal policy are economic stability, price stability, full employment, optimum allocation of resources, accelerating the rate of economic development, encouraging investment, and capital formation and growth.</div>
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	<strong>Who sets fiscal policy?</strong></div>
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	In India, the Union finance minister formulates the fiscal policy.</div>
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	<strong>What is the importance of fiscal policy?</strong></div>
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	Fiscal policy is a crucial part of the economic framework. In India, it plays a key role in elevating the rate of capital formation, both in the public and private sectors.</div>
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	The fiscal policy helps mobilise resources for financing projects. The central theme of fiscal policy includes development activities like expenditure on railways, infrastructure, etc. Non-development activities include spending on subsidies, salaries, pensions, etc. It gives incentives to the private sector to expand its activities.</div>
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	Fiscal policy aims to minimise income and wealth inequalities. Income tax is charged on all salaried persons directly proportioned to their income. Likely indirect taxes are also more in the case of semi-luxury and luxury items than that of necessary consumable items. In this way, the government generates a good amount of revenue and that also leads to a reduction in wealth inequalities.</div>
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	A prudent fiscal policy stabilises price and helps control inflation.</div>
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	Fiscal policy planning gives the larger chunk of funds for regional development so as to achieve a balanced regional development. It aims to reduce the deficit in the balance of payment.</div>
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	<strong>Difference between monetary policy and fiscal policy</strong></div>
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	Monetary policy is concerned with the management of interest rates and the total supply of money in circulation. It is generally carried out by the RBI.</div>
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	Fiscal policy, on the other hand, estimates taxation and government spending. It should ideally be in line with the monetary policy, but since it is created by lawmakers, people&#39;s interest often takes precedence over growth.</div>

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Primary Deficit

What is Primary Deficit

Latest Updates on Primary Deficit

Primary deficit: Silver lining in govt's efforts to contain fiscal deficit

Primary deficit in Q1 over ten times of Budget target at Rs 3 lakh cr

Hole at the centre of govt finances