India’s Fiscal Deficit

Context:

The Centre’s fiscal deficit for April–August 2025 stood at 38.1% of the full-year Budget Estimate (BE), as per data released by the Controller General of Accounts (CGA).

What is Fiscal Deficit?

• The shortfall between the government’s total expenditure and total revenue (excluding borrowings).
• Formula:
  Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts)
• It shows how much the government needs to borrow to finance its expenditure.

What to Do When Fiscal Deficit Occurs?

Governments adopt a mix of short-term financing measures and long-term structural reforms:

Short-term Financing (Bridging the Gap)

• Borrowings: From domestic market (bonds, securities) or foreign sources.
• Disinvestment: Selling govt stake in PSUs to raise capital.
• Use of Reserves: Dividend transfers from RBI/PSUs.
• External Aid/Loans: From multilateral institutions (World Bank, ADB, AIIB).

Long-term Structural Measures

• Boost Revenue:
  • Widen tax base (GST, direct tax compliance).
  • Improve non-tax revenues (dividends, fees, spectrum auctions).
• Rationalise Expenditure:
  • Cut down subsidies/leakages.
  • Better targeting via DBT (Direct Benefit Transfer).
  • Prioritise productive capex over revenue expenditure.
• Reforms for Growth:
  • Encourage FDI, FPI, private investment.
  • Infrastructure push to boost GDP and tax collection.

Last Resort

• Monetisation of Deficit (RBI printing money) – Inflationary, avoided in normal times.

Types of Deficit