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
