5 March 2013

Why is the fiscal deficit important

While a small fiscal deficit-to-GDP ratio is manageable, it has risen sharply over the last five years. Thus, whereas it is currently around 5 per cent, it was consistently lower than 4 per cent during April 2003 and March 2008. This is because, when the global recession hit, the Indian economy slowed down and also because the government introduced an expenditure stimulus. It thus began to spend more than usual....

To deal with a high fiscal deficit, the government can raise taxes, reduce expenditure and/or borrow money. While the first two means are not advisable in times of slow economic growth, such as now, borrowing money is the most suitable option. Much like an individual or a company, the government can also raise funds for its excess expenditure by taking loans. The only difference is that while individuals and companies borrow from banks, the government can borrow from financial institutions, non-finance companies and even the public of India


3 comments:

  1. Extremely good, very useful and informative I think this article is really helpful especially for someone like me. I read the whole article and I printed it for reference for later on.

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