Fiscal Deficit

Trends and Components

By
Darshita Shah
content
 Brief about Fiscal Deficit

 Objectives of Fiscal Policy

 Components of Fiscal Deficit

 Trends

 At global level

 Measures

 conclusion

Brief about Fiscal Deficit

q The term ‘fisc’ means treasury thus fiscal policy means policy related to treasury.
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q Fiscal policy comprises of public revenue , public expenditure and public debt.
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q It has important place in modern times particularly after the great economic
depression of thirties.
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q The Fiscal deficit is the difference between the government’s total expenditure
and its total receipts.
 Components of fiscal deficit

ü Revenue Receipts
• Tax revenue
• Non Tax revenue
ü
ü Capital Receipts
• Recovery of loan
• Other receipts
ü
ü Total Expenditure
•
• Plan and non plan expenditure
Trends
 In 15years of period from 1975-90 fiscal deficit
goes rose from 4.7% to 7.9% of GDP


 Non plan revenue expenditure on defense,
interest payments, food and fertilizer subsidies
rose sharply in 1980s



 Reforms were taken up from the year 1991 to
restore the fiscal deficit.
 Trends

 As such the fiscal deficit reduced to 4.1% in

1996-97


 Rose again in 2000-01 and stood at 5.6%


 Fiscal responsibility and budget
management( FRBM) bill was introduced in 2000
and FRBM act was passed in 2003


 As a result deficit has been reduced & stand
at 3.6% in 2006-07
1960 - 1990


 Corporate taxation initiated

 Oil shocks in 1973 and 1979

 Exemption on agricultural income in 1974

 Subsidy rose sharply during 1980s

 MODVAT in 1986

 BOP crisis

Revenue Receipts ( in %)
Expenditure ( in %)
Fiscal deficit 1960-1990
1990 to 2009
q Reforms
q LPG
q Kargil war
q The undue debt burden is crippling
q NCMP policy (2004-05)
q Farmer’s loan waiver
q Sixth pay commission
q High inflation
q Global crisis

Revenue & Expenditure

Source: economic survey 2006-07

After 1987-1991: the trends decreases due to tax reforms.

Indirect taxes coming down, direct taxes starts increasing.

In 2007-08, lowering in Excise duties; growth in Automobiles, Drug,
Pharmaceuticals sectors etc.

Abolition of numerous exemptions and concessions.

1971-77: Oil seeds and black pepper import increases.

Depend on Exchange rate, domestic production level.

In 2008-2009, Basic exemption limit raise to 1,50,000.



Fiscal deficit till 2009
r
Revenue Receipts
Capital Receipts
Total Expenditure
 At global level

 Bangladesh is being lauded for controlling wasteful subsidies


 Nepal has a revenue-to-GDP ratio far higher than India and has
been running fiscal and current account surpluses.

 Pakistan, despite all its struggles, has been recently upgraded
by the global ratings firm Standard & Poor’s for its efforts
at fiscal consolidation. 

 Pakistan (4.4%)

 Sri Lanka (8%)
•

 China (3.4%)

 Indonesia (0.8%)  


•
The Largest Fiscal Deficit among World’s Major Economies
 Measures

 Reducing Public Expenditure





 Increasing Revenue from Taxation
 conclusion
 The fall in inflation after 1998 implied the loss
of an important source of revenue.

 Reducing government spending as a proportion of
GDP in India is probably not an alternative.

 India’s fiscal situation requires immediate
attention.

 The most respected rating agency in the world
recently revised India’s status from STABLE to
NEGATIVE. The reason- because of our fiscal
deficit.

 Fiscal journey

Thank you
 Bibliography

 India macroeconomics and political economy by

Joshi and Little

 Indian economy part 1st and 2nd

 RBI handbook

 http://indiabudget.nic.in/previouses.htm

 Macroeconomics –theory and policy by Dr. H. L.
Ahuja

 Economic survey 2008-09

tax

 In 1 9 5 0 -5 1 : le ss to ta lta x co lle ctio n m e re 6 . 3 1 %


 La u n ch in g o f five Ye a r p la n in 1 9 5 0 ; in cre a se in
im p o rts & m a n u fa ctu rin g excise d u ty ,
in te rm e d ia ry g o o d s.

 After 1951: expansion in administrative and
welfare activities of the Government.

 After 1987-1991: the trends decreases due to tax
reforms.

 Indirect taxes coming down, direct taxes starts
increasing.

 Cont …

 In 1957-58; for Administrative reasons, there was

reduction from Rs. 4,200 to Rs. 3,000.

 In 2008-2009, Basic exemption limit raise to
1,50,000.

 Custom duty tax

 1950-51 to 1970-71: Protective trade policy and

dwindling of foreign reserves reduced.

 Abolition of numerous exemptions and concessions.

 1971-77: Oil seeds and black pepper import
increases.

 Depend on Exchange rate, domestic production
level.



 1976-77: Fertilizer retention price introduce.

 1979-81: Oil price doubled & increase custom
revenue.

 1990-91:Progressive decrease in import duty and
increase in export duty.

 1993-94: Reduction in tariff and corporate tax
reduce custom duty.



 tax

 1990-91: Tax Reforms


 Income tax in gross tax revenues increases.

 Corporation tax increases to 30%.

 2005-06-2007-08: 9.2% Service Tax was also
included.


 tax

 1950-51: Excise duty modest = 16.8% of Central

tax collection.

 1970-71:breakdown; numerous exemptions and
concessions.

 Substantial legal and administrative complexity
with increase in litigation.

 Burden of duties falls on all section of society.

 In 2007-08, lowering in Excise duties; growth in
Automobiles, Drug, Pharmaceuticals sectors etc.

 exp

 1990-91: Ratio to GDP decline- 28.8% to 25.1%.


 1997-98: Trend follow upward movement- 29.5 %.

 Reason: National & sub-national levels of
Government expenditure correction.

 Cut in Capital Expenditure.



 Subsidy exp

 1991-92 : Decrease in Subsidy to 1.11% of GDP.


 Reason: Reform & Rationalization of
Fertilizer subsidy, decontrol of Phosphate
& NPK.

 Drastic variation in the price of Wheat &
Paddy.

 2001-02: Release of food grain at concessional
rates.

 The prices of Wheat and Rice get reduced.

 2002: Subsidization in the oil sector.

