Question

What is fiscal deficit? What are its implications?

Answer 1

Fiscal deficit is equal to the excess of all expenditures (capital and revenue) over the sum of revenue and capital receipts excluding borrowings of the government. Implications:

(1) It shows the extent of dependence of the government on borrowings to meet its budget expenditure.

(2) It encourages wasteful and unnecessary expenditure on the part of the government.

(3) It leads to inflationary pressure in the economy.

(4) The entire amount of borrowing is not available for meeting expenditure because a part of it is used for interest payments.