Fiscal Deficit

The central government’s fiscal deficit stood at Rs 3.52 lakh crore in April-June, accounting for 21.2 percent of the full-year target.

The Centre is targeting a fiscal deficit of Rs 16.61 lakh crore for FY23, or 6.4 percent of GDP.

FRBM Act

The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in It is concerned with the maintenance of a balance between government revenue and government spending.

The Act set targets for the government to reduce fiscal deficits. It was mandated that both states and the centre would cut the fiscal deficit to 3% by 2008-09. The targets were put off several times.

• • Fiscal deficit is the difference between total expenditure and total receipts except borrowing and other liabilities.

The Act also mandated that along with the budget, the Central Government should place the following three policy statements before houses of Parliament.

• • Medium-term Fiscal Policy Statement: It sets a three-year rolling target for specific fiscal indicators and examines whether revenue expenditure can be financed through revenue receipts on a sustainable basis and how productively capital receipts including market borrowings are being utilised.
  • Fiscal Policy Strategy Statement:It sets the priorities of the government in the fiscal area, examining current policies and justifying any deviation in important fiscal measures.
  • Macroeconomic Framework Statement: It assesses the prospects of the economy with respect to the GDP growth rate, fiscal balance of the central government and external balance.

In 2016, the government set up a committee under NK Singh to review the FRBM Act. The government believed the targets were too rigid.

Recommendations of NK Singh Committee

The committee recommended that the central government should bring down the fiscal deficit to 3% of the GDP by 2020, cut it to 2.8% in 2020-21 and 2.5% by 2023.

The committee also recommended that states should keep their fiscal deficit under 3% of their respective gross state domestic product (GSDP).

It also suggested that India should adopt a debt-to-GDP ratio as a new anchor of fiscal policy along with the fiscal deficit and gradually bring it down to 60 per cent — comprising 40 per cent for the Centre and 20 per cent for the states. 

Current Status

However, Covid-19 pandemic and resultant lockdown led to a sharp rise in deficit level as government spending jumped to support the economy.

At present, the Centre is targeting a fiscal deficit of 4 percent of GDP for the Financial Year 2022-23. The government aims to bring down the fiscal deficit to 4.5 per cent by 2024-25.