Definition of 'Fiscal Deficit'

When a government's total expenditures exceed the revenue that it generates (excluding money from

borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.

Investopedia explains 'Fiscal Deficit'

A fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.
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India to miss growth, fiscal deficit targets

New Delhi: The government admitted on Friday that it wouldnt be able to meet the current fiscal years targets for growth, fiscal deficit and disinvestment, and pinned its hopes on the economy bouncing back next year. That optimism comes as economists are cutting growth estimates for the current and the next fiscal years. In its mid-year analysis of the economy for the year ending 31 March, the finance ministry said growth could slow to 7.25-7.75% from its budget estimate of 9%. It didnt give new estimates for the fiscal deficit or disinvestment. Uncertainty around the world and certain domestic factors have impacted the Indian economy, which has resulted in moderation of gross domestic product (GDP) growth during the first half of 2011-12, said the report that was presented in Parliament. A file photo of finance minister Pranab Mukherjee. During the first half of the current fiscal year, the economy grew at 7.3%. The economy may face a greater problem if the manufacturing sector does not pick up, finance minister Pranab Mukherjee said. We need 10-12% growth in the sector. For that, we have to create confidence by allowing institutions to function and create conducive atmosphere where investment comes, he said in the Lok Sabha while replying to the price rise debate. The manufacturing sector grew at the slowest pace in more than two years, at 2.7%, in the September quarter. Even 7.25-7.75% may be too ambitious a target, according to economists. We expect growth to be 7%, Crisil Ltd chief economist D.K. Joshi said. The chances of growth falling below that are minimal, he said. The mid-year report said some revival next year is expected, although the outlook remains mixed.

If Europe slides into a proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slow down and we could also be impacted, the report said. On the other hand, given that Indias fundamentals are strong, if Europe and the US remain stable, it should be possible for us to get back close to our long-run target of 9%.

The report said part of the turmoil was on account of the increasing importance of emerging nations. The picture of the world economy has thus turned. While China, India and other large emerging markets are not entirely immune to the ongoing crisis in developed countries, their vulnerabilities are much less, it said. Without fiscal stimulus, it would be difficult to expect a revival of the economy next year, said C.P. Chandrasekhar, professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University. During the downturn in 2008, both India and China provided stimulus packages. You need a stimulus to counter the slowdown, without which the impact of any recession on developing countries will be greater than last time, he said. The report said that while developed countries are currently in a precarious situation, developing nations are not immune. However, the medium-term growth trajectory in India and other emerging markets should remain strong, even if temporarily set for a modest immediate slowing, it said. While, no economy in todays globalized world is impervious to what happens in other nations and there is no such thing as a sure forecast, we expect the long-run growth target of 9% per annum to be achievable, it added. Independent of the global scenario, the domestic economy needs policy action and removal of bottlenecks in sectors such as mining to achieve 9% growth in the medium to long run, Crisils Joshi said. The potential to grow at 9% is there. But that is not a sufficient condition, he said. The report held that the overall fiscal policy stance for the macroeconomy remains on the consolidation track, even though there may be a small transgression this year. The finance ministry said the first-half fiscal performance indicated it would be difficult to meet the deficit target. While the government did not revise its fiscal deficit target of 4.6%, holding that the widening will be minimal, economists expect the deficit to cross 5.5% owing to higher borrowing, lower revenue accrual and the increasing burden of subsidies. The government said that the deviation will largely be on account of higher refunds on direct taxes and non-realization of disinvestment proceeds in proportionate terms during the first half of 2011-12. In the first six months, the fiscal deficit reached 68% of the budget estimate for the year, while the revenue deficit reached 72.2%. This is higher than it was in the first half of the previous year. Trends in tax revenue (inclusive of refunds) dont show any sign of targets being missed, the report said. However, more money needed for various subsidies will make it difficult to adhere to the total expenditure target. All ministries and departments have been asked to observe expenditure ceilings for the year as per the budget estimate. It has been advised that additional expenditure requirements during the year, if any, should be met from savings from the overall expenditure outlays, it added. Indias indirect tax receipts rose 16.9% to Rs. 2.5 trillion in the April-November period from the year earlier, S.K. Goel, chairman of the Central Board of Excise and Customs, told reporters on Friday. The budget had projected accruals of Rs. 40,000 crore through disinvestment receipts andRs 13,000 crore from the broadband wireless access auction. So far, only Rs. 1,144.56 crore has come in from asset sales in an uncertain market environment.

The report said divestments in Steel Authority of India Ltd, Oil and Natural Gas Corp. Ltd, Hindustan Copper Ltd, Power Finance Corp. Ltd, Bharat Heavy Electricals Ltd and National Buildings Construction Corp. Ltd may be completed this year. All of these plans have cabinet approval. The disinvestment of CPSEs (central public sector enterprises) is an ongoing process and other cases will be firmed up in consultation with ministries and CPSEs concerned, and, thereafter, the approval of the cabinet committee on economic affairs will be sought for implementation of the same, finance secretary R.S. Gujral was quoted by PTI as saying. We still feel that there is a possibility of it (achieving the disinvestment target), he said, but added nobody can be confident on this. Expressing concern over the high current account deficit, which was at 3.1% of GDP in the June quarter, the report said balance of payments may come under stress during any global economic crisis and when there was any unexpected reversal of capital flows. To increase the resilience of balance of payments, the objective, therefore, has to be on lowering the current account deficit through promoting exports and invisible receipts. Indias exports grew 33.2% to $192.7 billion (around Rs. 10 trillion today) in the April-November period, commerce secretary Rahul Khullar said on Friday. Imports rose 30.2% to $309.5 billion, leaving a trade gap of $116.8 billion. Holding that the comfort level for current account deficit is 3-3.5% of GDP, Khullar said India faced a serious balance of trade problem. The finance ministry said the volatility in the rupee is substantially due to the global currency markets and has very little to do with India. Currency markets worldwide are known to exhibit some tendency to overshoot periodically. However, the view we take is that intervention should be limited and confined to cases where there is volatility and not to alter the trend, he said. The partially convertible currency is down nearly 17% against the dollar this year and is the worst performer in Asia. The report by the finance ministry said allowing 51% foreign direct investment in multi-brand retail would help ease prices. Cabinet approval for this had to be suspended owing to resistance from the opposition and allies. The report projected that headline inflation is likely to decline to 7% by March from 9.7% in October.