Gross Fiscal Deficit (GFD)

Fiscal Deficit:

  • The fiscal deficit is the excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year.
  • The difference between total revenue and total expenditure of the government is termed as fiscal deficit.
  • Actually, fiscal deficit represents the total borrowing requirements of the central government.
  • Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. 
  • Most importantly, fiscal deficit indicate the financial health of the budget and that of the government. Higher fiscal deficit thus becomes a matter of concern. On the other hand, a manageable fiscal deficit is a welcome sign.

{The term fiscal deficit is defined as all expenditure minus all receipts except borrowings.

           Fiscal deficit = Total Expenditure – Total Receipts except borrowings}

Gross fiscal deficit (GFD):

  • The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts.

Gross Fiscal Deficit = (Total Expenditure + Loans Servicing) – (Revenue Receipts + Non Debt Capital Receipts)

FRBM and Its review committee:

  • The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set targets for the government to reduce fiscal deficits.
  • In May 2016, the government set up a committee under NK Singh to review the FRBM Act.
  • The committee recommended that the government should target a fiscal deficit of 3 per cent of the GDP in years up to March 31, 2020 cut it to 2.8 per cent in 2020-21 and to 2.5 per cent by 2023.
  • The combined debt-to-GDP ratio of the centre and states should be brought down to 60 per cent by 2023 (comprising of 40 per cent for the Centre and 20% for states) as against the existing 49.4 per cent, and 21per cent respectively.
  • It also recommends that the central government should reduce its revenue deficit steadily by 0.25 percentage (of GDP) points each year, to reach 8% by 2023, from a projected value of 2.3% in 2017.

More Information

Revenue deficit:

  • Revenue deficit is excess of total revenue expenditure of the government over its total revenue receipts. 
  • Revenue deficit = Total revenue expenditure – Total revenue receipts

Primary deficit:

  • Primary deficit is defined as fiscal deficit of current year minus interest payments on previous borrowings.
  • Primary Deficit= Fiscal Deficit – Interest Payments

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