Question

‘The fiscal deficit gives the borrowing requirement of the government’. Elucidate.

Answer 1

Fiscal deficit is the excess of total expenditure over total receipts.

That is, when total government expenditure is greater that total government receipts, the government faces fiscal deficit.

Fiscal deficit is estimated as:

Total Expenditure (revenue + capital) − Total Receipts (excluding borrowings).

Fiscal deficit gives an indication to the government about the total borrowing requirements from all sources. Fiscal deficit can be financed through domestic borrowings and/or borrowings from abroad. Greater fiscal deficit implies greater borrowings by the government.