The Union Budget will be tabled in the parliament in February and like every year, the effectiveness of it will be assessed by several indicators, including the fiscal deficit.

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What's a fiscal deficit?

The word 'fiscal' refers to annual government account statements and the word deficit stands for 'shortage'. Therefore, the fiscal deficit is the term used to define the difference between what a government spends and what it collects as revenue.

According to the Government of India, fiscal deficit is the “excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year”.

A fiscal deficit situation occurs when the government spends more than it earns. This deficit is calculated in absolute terms and also as a percentage of the Gross Domestic Product (GDP) of the country. If a country has a large and recurring fiscal deficit, it shows that the government has been spending beyond its means.

How is fiscal deficit computed?

The deficit is calculated by taking out the difference between the government’s total income or receipts and its expenditures.

The components that make up the government’s total income are -- corporation tax, income tax, custom duties, Union excise duties, GST and taxes of union territories, interest receipts, dividends and profits, external grants, other non-tax revenues, and receipts of Union territories.

Meanwhile, the government expenditure comprises -- revenue expenditure, capital expenditure, interest payments, and grants-in-aid for the creation of capital assets.

Is fiscal deficit bad?

A moderate fiscal deficit is considered good for the economy if the money is spent on infrastructure projects like highways, roads, ports and airports as these constructions boost economic growth and create job opportunities.

India's fiscal deficit

India's fiscal deficit for 2020-21 was 9.3 percent or ₹18.21 lakh crore of the GDP. According to Fitch Ratings, India could better its fiscal deficit at 6.6 percent of GDP this financial year. The projection is in tune with the government target. For the current financial year, the Indian government expects the deficit at 6.8 percent of GDP or Rs 15.06 lakh crore.