Fiscal Deficit

2588 WordsFeb 20, 201111 Pages
Fiscal deficit In a system of indicative planning reliance, fiscal policy plays an instrumental role in the economy of any country. Planning Commission of India had pointed out in the Seventh Five Year Plan that, the “Fiscal policy has a multi-dimensional role” which “particularly aims at improving the growth performance of the economy and ensuring social justice to the people. However, when a fiscal policy is not used discreetly, it is likely to create a fiscal mess.....A fiscal imbalance requires immediate corrective measures because a large fiscal deficit is non-sustainable.” The Emergence of Fiscal deficit (or Budget Deficit): On account of growing burden of non-development expenditure, the fiscal situation deteriorated throughout…show more content…
Capital expenditure is made by the establishment to consistently maintain the operational activities. In India, the fiscal deficit is financed by obtaining funds from Reserve Bank of India, called deficit financing. The fiscal deficit is also financed by obtaining funds from the money market (primarily from banks). Revenue deficit: Revenue deficit is the difference between the revenue expenditure and the revenue receipts (the recurring income for the government). When a country runs a revenue deficit it means that the government is unable to meet its running expenses from its recurring income. To put it simply Revenue expenditure is the expense incurred for the normal running of the Government’s various departments and services, interest charged on debt incurred by Government, subsidies etc., whereas Revenue receipts consist of tax collected by the government and other receipts consisting of interest and dividends on investments made by Government, fees and other receipts for services rendered by government. Capital expenditure: It is the fund used by an establishment to produce physical assets like property, equipments or industrial buildings. Capital expenditure is made by the establishment to consistently maintain the operational activities. For example money spent on building of hospitals, dams, roads, etc. In India, the fiscal deficit is financed by obtaining funds from Reserve Bank of India,
Open Document