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
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