The because it gives borrowing requirements of the

The fact that this will be the last full Budget for
the ruling dispensation before the country votes to elect a new government in
2019, expectations are skyrocketing in all sectors. However, the government
faces a major challenge of meeting its 3.2 per cent fiscal deficit target of
the GDP for the current fiscal.

Understanding
fiscal deficit and its importance

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The difference between total expenditures and
revenues (excluding borrowings) of the government in a financial year is
referred as fiscal deficit. It is important because it gives borrowing
requirements of the government to meet its target expenditures in various
sectors and schemes.

However, it should be noted that while calculating
the total revenue according to the formula, borrowings are excluded.

Fiscal deficit formula: Total expenditure – total
receipts (excluding borrowings)

Here it is important to mention that if borrowing is
added in total receipts, the fiscal deficit will be 0. Borrowing includes not
only the loan amount but also interest on loan.

What
high fiscal deficit means and factors behind it

Primary factors that point to fiscal deficit include
high spending, poor economic activities, high inflation and lower revenue collections.
A high fiscal deficit means putting at risk the country’s overall growth rate.
Besides, it also poses serious questions to the government’s economic
management abilities.

In an ideal system, expenditure is low whereas growth
advances. But when there is an increase in fiscal deficit, it means that the
government is exceeding its spending target while it is earning less.

Current
scenario in India

Given the fact that the GST and overall tax collections
were not upto the mark, and also the RBI and PSUs refusal to cough up more to
meet government expenditures, the latest figures make it tough for the
government to rein in the target. Thus, the risk of government breaching fiscal
deficit target for the current fiscal is very high.

The current state of affairs poses serious
challenges for the policymakers because the deficit, according to government
data, was already 112 per cent of the Budget at the end of November — raising
concerns about whether the government can meet the goal or not.

Latest data showed that receipts from GST dipped to
Rs 80,808 crore in November — lowest since GST’s July introduction. This was a
14 per cent drop from receipts in August, the first month of tax collection
under the GST regime.

The steep slowdown in collection, experts say, was largely
because of the sharp cut in rates for items and also poor compliance in the 7-month-old
new tax regime.

They even say that continuous downfall in revenue
collection post-GST forced the government to borrow an additional Rs 50,000
crore in the last quarter, putting the net borrowing at the highest level since
2013-14.

“The breach in fiscal deficit can be attributed to
the shortfall in GST collections, along with a reduction in meeting the overall
tax collection targets. Other key reasons for the deficit breaching the target
is lower dividend receipts from PSBs,” Anis Chakravarty, Lead Economist,
Deloitte India, said.

Also the sluggish revenues and front-loading of
expenditure due to early presentation of the Budget are among major factors for
the widening deficit.

Reports say that the sluggish economy may also
result in a shortfall in corporation tax. While in the first quarter the GDP
was … the second quarter brought some cheer to the government …

Aditi Nayar, an economist at credit rating agency
ICRA, said that GST receipts and sluggish economic activities have been a cause
for concern, thus fiscal slippage persist. She said that the slowdown due to
the twin implementation of back-to-back two key decisions – demonetisation and
GST can’t be ignored, adding that tax revenues, dividends and inflows from
other communication services undershoot the budgeted level.

According to information available from the Finance Ministry,
the government has so far managed to raise about Rs 54,000 crore of the
targeted Rs72,000 crore through disinvestment. However, there are reports that
government could garner profits of above Rs 90,000 crore, compared with the
estimate by March end.

There also concerns on the non-tax revenue side which
includes dividends from public sector banks and the RBI. Non-tax revenue is
only 36.5 per cent of the full-year target in the first 8 months. The Central
Bank has transferred Rs 30,659 crore as a dividend to the government, less than
half the surplus it transferred the previous year.

In the given scenario, analysts say that the fiscal
deficit could now rise to 3.5 per cent of the GDP and this slippage means that
the expected target for the next fiscal – 3 per cent, will not be adhered to.
However, the government had on many occasions appear confident that the target will
be achieved.

The fact that this will be the last full Budget for
the ruling dispensation before the country votes to elect a new government in
2019, expectations are skyrocketing in all sectors. However, the government
faces a major challenge of meeting its 3.2 per cent fiscal deficit target of
the GDP for the current fiscal.

Understanding
fiscal deficit and its importance

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The difference between total expenditures and
revenues (excluding borrowings) of the government in a financial year is
referred as fiscal deficit. It is important because it gives borrowing
requirements of the government to meet its target expenditures in various
sectors and schemes.

However, it should be noted that while calculating
the total revenue according to the formula, borrowings are excluded.

Fiscal deficit formula: Total expenditure – total
receipts (excluding borrowings)

Here it is important to mention that if borrowing is
added in total receipts, the fiscal deficit will be 0. Borrowing includes not
only the loan amount but also interest on loan.

What
high fiscal deficit means and factors behind it

Primary factors that point to fiscal deficit include
high spending, poor economic activities, high inflation and lower revenue collections.
A high fiscal deficit means putting at risk the country’s overall growth rate.
Besides, it also poses serious questions to the government’s economic
management abilities.

In an ideal system, expenditure is low whereas growth
advances. But when there is an increase in fiscal deficit, it means that the
government is exceeding its spending target while it is earning less.

Current
scenario in India

Given the fact that the GST and overall tax collections
were not upto the mark, and also the RBI and PSUs refusal to cough up more to
meet government expenditures, the latest figures make it tough for the
government to rein in the target. Thus, the risk of government breaching fiscal
deficit target for the current fiscal is very high.

The current state of affairs poses serious
challenges for the policymakers because the deficit, according to government
data, was already 112 per cent of the Budget at the end of November — raising
concerns about whether the government can meet the goal or not.

Latest data showed that receipts from GST dipped to
Rs 80,808 crore in November — lowest since GST’s July introduction. This was a
14 per cent drop from receipts in August, the first month of tax collection
under the GST regime.

The steep slowdown in collection, experts say, was largely
because of the sharp cut in rates for items and also poor compliance in the 7-month-old
new tax regime.

They even say that continuous downfall in revenue
collection post-GST forced the government to borrow an additional Rs 50,000
crore in the last quarter, putting the net borrowing at the highest level since
2013-14.

“The breach in fiscal deficit can be attributed to
the shortfall in GST collections, along with a reduction in meeting the overall
tax collection targets. Other key reasons for the deficit breaching the target
is lower dividend receipts from PSBs,” Anis Chakravarty, Lead Economist,
Deloitte India, said.

Also the sluggish revenues and front-loading of
expenditure due to early presentation of the Budget are among major factors for
the widening deficit.

Reports say that the sluggish economy may also
result in a shortfall in corporation tax. While in the first quarter the GDP
was … the second quarter brought some cheer to the government …

Aditi Nayar, an economist at credit rating agency
ICRA, said that GST receipts and sluggish economic activities have been a cause
for concern, thus fiscal slippage persist. She said that the slowdown due to
the twin implementation of back-to-back two key decisions – demonetisation and
GST can’t be ignored, adding that tax revenues, dividends and inflows from
other communication services undershoot the budgeted level.

According to information available from the Finance Ministry,
the government has so far managed to raise about Rs 54,000 crore of the
targeted Rs72,000 crore through disinvestment. However, there are reports that
government could garner profits of above Rs 90,000 crore, compared with the
estimate by March end.

There also concerns on the non-tax revenue side which
includes dividends from public sector banks and the RBI. Non-tax revenue is
only 36.5 per cent of the full-year target in the first 8 months. The Central
Bank has transferred Rs 30,659 crore as a dividend to the government, less than
half the surplus it transferred the previous year.

In the given scenario, analysts say that the fiscal
deficit could now rise to 3.5 per cent of the GDP and this slippage means that
the expected target for the next fiscal – 3 per cent, will not be adhered to.
However, the government had on many occasions appear confident that the target will
be achieved.

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