Budget Explained: What is a fiscal deficit? How does the government compensate for this?

Budget 2024: Finance Minister Nirmala Sitharaman will present the Budget 2024 of the country on February 1, 2024. This will be her sixth Union Budget as a Finance Minister.

The budget includes the income and expenses of the central government for the upcoming financial year. From the common man to businessmen, employees, and women, everybody has a lot of expectations from the annual budget.

However, there are many such things mentioned in the budget that affect the entire economy. One such thing is the 'fiscal deficit'. Let us understand what a fiscal deficit is and what it includes:

What is a fiscal deficit?

One of the most important figures in the budget speech of the Finance Minister is the fiscal deficit. Everyone has an eye on this figure, as it explains how much more money the government spends than it earns or collects from taxes, etc. In simple words, the difference between less earnings and more expenditure is called the fiscal deficit.

How does the government compensate for the fiscal deficit?

The government compensates for this financial loss by borrowing from somewhere, like issuing bonds or securities from foreign investors (FIIs). An increase in the fiscal deficit means that government borrowings will increase. And if borrowings increase, the government will have to pay more interest. So, it is very important to keep the fiscal deficit under control for the economy to grow.

How does the market react to the fiscal deficit?

It is common knowledge that the government makes a deficit budget. But the important thing is how much bigger this loss should be. It is generally said that if the loss is within a certain limit, it is acceptable. However, the market does not like the fiscal deficit to be larger than necessary.