HOW DOES INDIA’S 83% FISCAL DEFICIT IMPACT THE ECONOMY?
India’s deficit for the first three months of fiscal 2020-21 was 6.62 lakh crore, which is 83.2% of the estimated budget for the year. This is the highest percentage of fiscal deficit for the first quarter’s available data since FY-1999. The government’s revenue tax drastically fell to 32.6% due to the Covid-19 pandemic and the worldwide lock down.
“The 83% figure is not surprising because it is using a denominator that has already been exceeded,” said D.K. Srivastava, chief economist with Ernst and Young.
The huge gap in the fiscal deficit was because the government winded up with a gross tax revenue estimate of 20.1 trillion against the revised estimate of 21.63, a difference of more than 1.5 trillion.
According to the current estimation, the combined fiscal deficit of state and central government could cross the 10% of the GDP from the current 7-7.5%. This will something which will affect not only the government but also the citizens’ financial lives. It has already started.
However, Dr. Srivastava found some good reason in 40% growth in the first three months of capital expenditure to 88,273 crore Indian rupees.
“Looking at the data for the last 20 years, we find that this is historically high, in terms of year on year percentage growth for the first quarter”-he said.
He also added, “We find that has been front loaded, so that is good news.”
But the development of the Indian economy is still stuck to the tentative condition.
What impact could have on the general life?
- The government is already planning to cut costs, and it will have a great impact on the salaries of its employees irrespective of the private and government sector.
- The prices of essential commodities like petrol, oils, LPG gas cylinder is hiking day by day. The taxes on petrol and diesel have started to increase. People are already paying more per liter than they should have given.
- The Reserve Bank of India is trying to scale down interest rates and in the process of returns from fixed deposit have declined significantly.
How it affects savings?
- If deposit rates have gone down, the people need to save more amount than before to meet the same saving goals.
- Interest rates on deposits have reduced due to excessive lucidity in the financial system.
- Nowadays it is good to keep money into small savings schemes. The National Small Savings Fund helps the government to abase the fiscal deficit.
What should the government do to bring down the deficit?
The government planned to fill the deficit by borrowing more money this year. It was also said that 12 trillion Indian rupees to finance the deficit.
“We cannot leave behind the legacy of debt for our future generations. We Cannot go on spending today which would be financed by taxation at a future date.”- The former finance minister, Arun Jaitley said.
In this alarming condition, only borrowing money will not be enough to fill the deficit, but RBI should come forward to print the cash and give it to the government to meet the gap. The pandemic has already made the situation worse. So it is time to take major steps to overcome the situation.