Interim Budget 2024: What is fiscal deficit? How does it impact national economy and a common man?

When a Union Budget is presented, finance minister lays an emphasis on the fiscal deficit of India among many other important factors for the budget.

In the Interim Budget 2024 on Thursday (February 1, 2024), Finance Minister Nirmala Sitharaman revised fiscal deficit target for the current financial year.

In this write-up, know what is a fiscal deficit? How does it impact the national economy and the common man. 

Fiscal deficit is a term that is often thrown around in discussions about the economy, but what does it really mean and how does it impact the common man?

In simple terms, fiscal deficit refers to the difference between the government's total expenditure and its total revenue.

When the government spends more money than it earns, it creates a fiscal deficit.

This deficit is usually financed through borrowing, which can have both positive and negative effects on the economy and the common man.

One of the key impacts of fiscal deficit is its effect on interest rates.

When the government borrows money to finance its deficit, it increases the demand for credit in the economy.

This increased demand can lead to higher interest rates, making it more expensive for individuals and businesses to borrow money.

Higher interest rates can also lead to a decrease in investment and economic growth, which can ultimately affect the common man.

Another impact of fiscal deficit is its effect on inflation.

When the government spends more money, it increases the money supply in the economy.

This increase in money supply can lead to inflation, as there is more money chasing the same amount of goods and services.

Inflation can erode the purchasing power of the common man, as the cost of goods and services increases.

Fiscal deficit can also have an impact on the exchange rate of a country's currency.

When a government borrows money to finance its deficit, it increases the demand for foreign currency.

This increased demand can lead to a depreciation in the value of the domestic currency, making imports more expensive.

This can also lead to inflation, as the cost of imported goods increases.

In conclusion, fiscal deficit is a concept that has both positive and negative impacts on the economy and the common man.

While it can help finance government expenditure and stimulate economic growth, it can also lead to higher interest rates, inflation, and a depreciation in the value of the domestic currency.

It is important for governments to manage their fiscal deficits carefully and strike a balance between spending and revenue generation to ensure a stable and sustainable economy for the common man.