Question

"The fiscal deficit gives the borrowing requirement of the government". Elucidate.

Answer 1

Fiscal deficit refers to the excess of government expenditures over its receipts exclusive of borrowing. Thus, fiscal deficit points to borrowing requirements of the government to cope with its expenditure of the year. Higher borrowing implies higher burden of repayments of the loan and of interest on the future generation. As this burden mounts up, year after year, the resource base for the future generation tends to shrink. This will definitely retard the process of future growth, particularly when borrowings by the government are used for non-productive purposes.