Factors Affecting the economy: Fiscal Deficit, Inflation

PRESENTED BY Omkar Shegle (47)

What is Fiscal Deficit

Fiscal Deficit (FD)

Budgetary Deficit

Market Borrowing

Other Liabilities of Government

Total Expenditure minus Total Income

Through Government securities (GSec)/Bond

e.g. Pension and Provident to be given in future

Printing more money= Not good idea?

Effect of Debt Monetization is Inflation.

When and why is fiscal deficit= BAD?

Creates Inflation (e.g. Government is spending money on unproductive programs). Black Money. (e.g. demand pull type Inflation) Bond Yield increased. Crowding out Investment.(e.g. cost-push type Inflation)

Twin Deficit Hypothesis

This hypothesis says that as the fiscal deficit of the country goes up its trade deficit also goes up. In Indias case The causality is in both ways. A high fiscal deficit leads to higher trade deficit. And high trade deficit leads to higher fiscal deficit.

THE VICIOUS CYCLE

Twin deficit Hypothesis

Current Account Deficit (CAD)

Subsidy Burden = Fiscal deficit increased

Interest Payment

Thank You !!