Fiscal deficit and government’s new strategy
The government has succeeded in reducing the fiscal deficit by 66% in the current financial year (April-October). This reduction was possible mainly due to the slowdown in capital expenditure (capex). In this article, we will discuss this change in depth and understand how the reduction in capex has affected the government’s fiscal targets.
What is fiscal deficit?
Simple meaning of fiscal deficit
Fiscal deficit occurs when the total income of the government falls short of its total expenditure. This can be understood with a simple formula:
Fiscal deficit = Total expenditure – Total receipts
Reduction in capex: Government’s strategy
What is capex?
Capex, that is, capital expenditure, is the expenditure that is made in the construction of infrastructure, such as roads, bridges and hospitals. This year capex has come down by 14.7% to ₹ 4.7 lakh crore.
How did the reduction in capex reduce the deficit?
- Reduction in targeted expenditure: This year the government’s capex target was ₹ 11.11 lakh crore, but till now only ₹ 4.7 lakh crore has been spent.
- Change in priority: The government gave priority to immediate needs, such as salaries and pensions.
Fiscal Performance: A Look at the Data
April-October Key Achievements
- Fiscal Deficit: ₹7.5 lakh crore (46.5% of target)
- Revenue Expenditure: ₹20 lakh crore (growth of 8.7%)
- Total Expenditure: ₹48.2 lakh crore 51.3% of target
Progress over last year
- Fiscal deficit had crossed ₹8 lakh crore during the same period in 2023.
- Capex was ₹5.5 lakh crore in 2023, now reduced by 14.7%. —
Increase in revenue expenditure
Why is revenue expenditure important?
The government’s revenue expenditure, such as spending on salaries, pensions and operating schemes, reached ₹20 lakh crore this year, an increase of 8.7%.
Impactful initiatives
- Investment in social security schemes
- Ensuring income for employees and pensioners
Impact of declining tax collection
Analysis of tax collection
Gross tax collection saw a growth of 10.8% between April-October, while the growth was 12% till September.
Reasons for reduction:
- Slow economic activities
- Limited growth in taxpayer base
Upcoming challenges for the government
How will the fiscal targets be achieved?
- Capex boost: Increasing spending on infrastructure projects in the remaining months.
- Measures to raise revenue: Tax reforms and policy changes.
How does this strategy affect the general public?
Positive impact
- Reduction in fiscal deficit maintains economic stability.
- Helps in controlling inflation.
Negative impact
- Reduction in capex may slow down job creation and growth.
Long-term plans of the government
Priorities for the next year
- Rescheduling of projects: Completion of incomplete projects on time.
- Public-private partnership: Attracting private investment.
Are we going in the right direction?
Analysis of current strategy
Reduction in the fiscal deficit of the government is a positive sign. However, the long-term impact of the reduction in capex is also important to keep in mind.
Conclusion: Balance between stability and growth
The strategy of the government to reduce the fiscal deficit is commendable. However, the reduction in capex has raised questions on long-term growth. Maintaining a balance between stability and growth should be our priority.
FAQs: Frequently Asked Questions
1. Why was capex cut?
The cut in capex helped the government control the fiscal deficit.
2. What does increase in revenue expenditure mean?
It refers to the increase in salaries, pensions and other operating expenses.
3. Will the reduction in capex affect the economy?
Yes, the reduction in capex may affect employment and growth rate.
4. What is the fiscal deficit of the government?
The fiscal deficit of the government in April-October 2024 is ₹7.5 lakh crore.
5. Why did tax collection decrease?
Tax collection declined due to slowdown in economic activities and delay in tax reforms.