5 Feb 2018

Fiscal Deficit – The overall scale to measure the economy.

Finance feed by:

CA Rahul Agarwal
B.com (Hons),CA
CA in Practice    •    15 Year 6 Month  experience

Fiscal Policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. Fiscal measures are frequently used in tandem to achieve certain goals.

The usual goals of both fiscal and monetary policy are to achieve or maintain full employment, The establishment of these ends as proper goals of governmental economic policy
In taxes and expenditures, fiscal policy has for its field of action matters that are within government’s immediate control. The consequences of such actions are generally predictable: a decrease in personal taxation, for example, will lead to an increase in consumption, which will in turn have a stimulating effect on the economy. Similarly, a reduction in the tax burden on the corporate sector will stimulate investment. Steps taken to increase government spending by public works have a similar expansionary effect. Conversely, a reduction in government expenditure or an increase in tax revenues, without compensatory action, has the effect of contracting the economy.

“ Hence its well said every action has its reaction”- Sometimes helpful in short term and sometimes benefits flows in long term.

Fiscal policy relates to decisions that determine whether a government will spend more or less than it receives.

Fiscal deficit is net of revenue and expenditure , basically it’s that % of revenue which was ideally required to meet needs of the economy which has been borrowed from different parties.
In budget 2018 government target of fiscal deficit is 3.2%.

High fiscal deficit would mean high interest cost to government and high debt burden which might is risk to economy specially in the period of crises.
India has been reducing fiscal deficit during course of time which is healthy sign for the economy.

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