The Indian government’s fiscal deficit for the year 2020-21 has escalated to Rs. 11.58 lakh crore, or 145.5% of the Budget Estimate (BE), primarily due to lower revenue realization. This figure reflects the financial state at the end of December 2020 and implies that the government’s spending outweighed its earnings.
Fiscal Deficit Target for 2020-21
The central administration initially set the fiscal deficit target at Rs. 7.96 lakh crore, or 3.5% of the Gross Domestic Product (GDP). Despite this aim, the actual figures reflect a significant deviation from the intended roadmap.
Fiscal Deficit in 2019-20
According to data released by the Controller General of Accounts (CGA), the fiscal deficit at the close of December during the preceding fiscal year amounted to 132.4% of the BE of 2019-20. Therefore, the fiscal deficit for the year 2020 has seen a significant surge compared to the previous year.
Reasons for High Fiscal Deficit
Two significant factors contributed to the escalated fiscal deficit. Firstly, the Covid-19 pandemic led to disruptions in everyday business operations, leading to diminished revenue realization. Secondly, the government faced higher expenditure, especially related to food and public distribution and rural development. The rise in spending is primarily due to relief programs initiated by the government in response to the pandemic crisis.
Understanding Fiscal Deficit
Fiscal deficit refers to a scenario where the total disbursements made from the Consolidated Fund of India, excluding debt repayment, exceed the total funds received into the Fund during a fiscal year. In simpler terms, the fiscal deficit arises when the government spends more than it earns. This situation is quantified as a percentage of GDP or as total money spent in excess of income.
Expenditure and Income Components
The funds allocated for various operations, including payment of salaries, pensions, infrastructure development, and other works in the Budget, comprise the government’s expenditure. On the other hand, the income component includes revenue generated from taxes levied by the Centre and non-tax income sources.
Fiscal Responsibility and Budget Management Act, 2003
This act mandates that the central administration should adopt suitable measures to confine the fiscal deficit to 3% of the GDP by 31st March 2021. Based on the recommendations by the NK Singh committee (set up in 2016), the target was set to gradually reduce the fiscal deficit to 2.5% by 2023.
Controller General of Accounts (CGA)
Operating under the Department of Expenditure, Ministry of Finance, the CGA serves as the Principal Accounting Adviser to the Government of India. The CGA is entrusted with the responsibility to establish and maintain a technically sound Management Accounting System. The Office of CGA prepares regular analysis of expenditure, revenues, borrowings, and diverse fiscal indicators for the Union Government.
