Fiscal Deficit in India

Like every household, the government has income and expenditure. The income or the revenue is primarily from the taxes that the government levies and income from its natural resources. If the expenditure exceeds the revenue, there is a gap in finances – fiscal deficit.
To bridge this deficit, the government must borrow funds. They can borrow from other countries or from its own people. The money raised from people is called the public debt. Like all debts, the government pays an interest on it. The interest can be paid by three possible ways:
1. increase the tax rates and collect more money in taxes
2. stimulate economic growth – increase tax collection in volume rather than in rates
3. print new currency notes to pay the debt – debt monetization.

Source: The Govt. of India Budget
The fiscal deficit is indicated as a percentage of the GDP. The fiscal deficit in India rose from 5.9% in 2008-09 to 6.5% in 2009-10. For 2011-12, the centre’s fiscal deficit came at 5.8% of the GDP.

Year Revenue Deficit Fiscal Deficit
(As per cent of GDP)
2003-04 3.6 4.5
2004-05 2.4 3.9
2005-06 2.5 4
2006-07 1.9 3.3
2007-08 1.1 2.5
2008-09 4.5 6
2009-10 5.2 6.5
2010-11(P) 3.2 4.8
2011-12(BE) 3.4 4.6
The government can reduce the deficit by measures such as controlling expenditures, stimulating growth, divestment, and reducing the subsidies. While some of these may be tough to achieve others may create controversy. However, the government must control the deficit.