Explainer: Decoding India’s latest fiscal deficit figures: Importance, significance of moderate data and more

In a major relief for policy makers, the government's fiscal deficit stood at Rs 4.68 lakh crore or 31.1% of the Budget Estimates (BE) at the end of August. According to the data released by the Controller General of Accounts on Thursday, the government’s fiscal performance appears much better in comparison to than the previous financial year.

Against this backdrop, Zee Business explains the meaning of fiscal deficit, how the government managed to contain the ballooning fiscal deficit and implications for the citizens.

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What is Fiscal Deficit?

In simple terms, it is the amount a government borrows to fulfill its legal mandates and implement welfare programmes. In technical terms, it is the difference between the total revenue and total expenditure of the government where ‘borrowings’ is excluded from the revenue part.

Why is the latest fiscal deficit figure important?

According to the CGA data, the Central Government’s fiscal deficit for the first five months of the current financial year i.e. April-August is stood at Rs 4,68,009 crore or 31.1% of the BE for the complete financial year - Rs 15,06,812 crore or 6.8 per cent of the estimated GDP. 

In comparison, the fiscal deficit for the same period during the last financial year was much higher at 109.3% mainly on account of a jump in expenditure to deal with the first wave of COVID-19 pandemic and low tax and non-tax resources due to restrictions on business activities.

Why was the fiscal deficit moderate?

It is on account of two reasons – high revenue and low expenditure. The Centre’s total receipts in the first five months stood at Rs 8.08 lakh crore or 40.9% of the Budget Estimate (BE) 2021-22 while it was a meagre 16.8 per cent during the corresponding period of the last financial year.

Similarly, the total expenditure was Rs 12.76 lakh crore or 36.7 per cent of BE up to August 2021 while it was 41% of the BE last year.

On the income front, besides the rise in collections of GST, Corporate Tax and Income Tax dividend from the RBI (Rs 99,122 crore transferred in May 2021) helped the Centre in mopping up over Rs 1,01,941 crore (or 98% of the FY22 BE) as the total ‘dividends and profits’ against 38% of the BE last year.

What is the significance of a moderate fiscal deficit?

No doubt, a moderate fiscal deficit is not only comforting for the fiscal policy managers but also beneficial for citizens as it entails lower taxes on account of low borrowing by the government.