Interim Budget 2024: ₹16.85 lakh crore (5.1%) fiscal deficit projected for this year
3 min read • Updated: February 1, 2024, 2:20 PM
The Interim Budget 2024 projects a fiscal deficit of ₹16.85 lakh crore, which is 5.1% of the GDP for the financial year 2024-25 (FY25). Fiscal deficit, the difference between government spending and revenue excluding borrowed funds, is a common tool for investing in a nation's future. India's fiscal deficit has ranged from 5.3% to 5.5% of GDP, aligning with FM Nirmala Sitharaman's goal to reduce it below 4.5% by FY26. While a fiscal deficit can be beneficial, prudent management is crucial. The projected deficit indicates the government's commitment to national development.
Fiscal deficit is created when the government spends more money than it earns (excluding debt) through taxes and other revenue sources.
A fiscal deficit is not necessarily a bad thing as it is an excellent tool for the government to keep investing in the nation’s future.
As per the Union Budget for the financial year 2024-25 (FY25), fiscal deficit projected at ₹16,85,494 crore 5.1% of GDP. The revised estimate (RE) for fiscal deficit for FY24 is 5.8% of GDP, lower from 5.9% originally projected.
The money borrowed for the fiscal deficit is used for investing in long-term assets and securing the nation’s financial future. Developing nations, like India, generally have a substantial fiscal deficit, which is used to propel the country’s economy. Out of the ₹17,86,816 crore of fiscal deficit in FY24, a total of ₹1000961 crore was allocated for capital expenses to build assets for the country.
What Is Fiscal Deficit?
In simple terms, the fiscal deficit is the difference between the government’s total expense and its total income (including the taxes and other revenues) excluding the borrowed money in a financial year. Often represented in percentage, fiscal deficit is calculated by subtracting the total expenses (or estimated expense, also known as budgeted estimate) of the government by the total income. The government fills the difference between its total income and total expenditure incurred by borrowing from different sources, including overseas markets, public sector banks, the public, and the Reserve Bank of India.
The fiscal deficit of a government can be calculated as an absolute amount as shown below or as a percentage of the country’s Gross Domestic Product (GDP).
**Fiscal deficit = Total expenditure – Total income (revenue receipts + recovery of loans + other receipts) ** For example, the budgeted estimate (BE) for FY24 was ₹45,03,097 crore and the total income was ₹27,16,281 crore excluding the borrowings, which made ₹17,86,816 crore the fiscal deficit for the year.
Is it problematic for a country to have a huge amount of fiscal deficit?
No. Although a country’s fiscal deficit indicates that the nation is spending beyond its resources, it is not necessarily a bad thing.
Think of a growing business for instance; in order to fuel the business’s growth, the owner will have to invest money into the business. Getting a loan is one of the best ways to grow the business without burning savings or cutting down expenses, which may hamper business operations. The profits made by the business because of the investment can outweigh the interest cost of the loan itself.
Similarly, a government also chooses to borrow money to invest in developing the nation and building assets to have a higher income in the future.
India’s fiscal deficit for the past couple of years has been in the range of 5.3% - 5.5% of the GDP. This year’s fiscal deficit also falls under the same range. The fiscal deficit for FY25 is adhering to the path projected by FM Nirmala Sitharaman in her speech for FY22 to reduce the fiscal deficit below 4.5% By FY26.
Undoubtedly, a fiscal deficit can be beneficial for a country, but the delicate balance required to manage the fiscal deficit cannot be taken for granted. Usually, with a well-thought-out and strategic approach, the government can leverage fiscal deficit to enjoy its positive aspects and propel economic growth of the country. The projected fiscal deficit (5.1% Of the GDP) revealed in the Interim Budget 2024 indicates the Indian government’s commitment to develop the nation.