Fiscal Deficit Situation is Reaching a Critical Proportion – Solutions Revealed!


December 13, 2018 admin 0 Comment

Fiscal Imbalance:

The fiscal deficit as a proportion of GDP was 6.1 % at 2008-09 (RE), compared with 2.7 per cent in 2007-08. The revenue deficit, a measure which reflects the excess of current expenditure over the current receipts, was estimated 4.5% of GDP in 2008-09, compared with 1.1% of GDP in 2007-08 (RE).

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The primary deficit i.e. the fiscal deficit net of interest payments, which is an indicator of the current fiscal stance of the government, was 2.5 percent of GDP in 2008-09 compared with 0.9 per cent in the previous year.

The Centre has projected fiscal deficit to fall to 4.6 percent in 2011-12. The Prime Minister’s Economic Advisory Council (PMFAC) report said capital flows this fiscal (2011-12) were likely to rise to $72 billion from $61.9 billion in 2010-11.

After 1991, the government has taken many steps towards fiscal consideration. These steps can be grouped into tax reforms and expenditure reforms.

Tax Reforms:

(i) Lowering down lax rates to discourage tax evasions; (ii) Rationalisation of lax rates- – reducing tax slabs; (iii) Introduction of VAT in many states; (iv) Simplification of tax system; (v) Computerisation of tax system; (vi) Increasing share of direct taxes in total tax receipts.

Expenditure Reforms:

(i)Reduction in subsidies on fertilisers, sugar, kerosene, LPG, petrol, etc.; (ii) Right-sizing of government staff; (iii) Restructuring of loss making PSUs; (iv) Introduction of new pension scheme: (v) Introduction of VRS.

It seems it will take some time to bring down fiscal deficit as per the FRBM Act due to recessionary trends prevailing.



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