Budget Deficit

In: Business and Management

Submitted By vickyaryan05
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Implications of Budget Deficit in India

When a government plans to spend more than its income, it resorts to financing the additional spending through a budgetary deficit. So, traditional definition of a budget deficit is the difference between total government outlays and the revenue receipts. But a complete and technical definition of deficit would be 'the difference between size of the government debt at the end of the year and the corresponding size of the debt a year later. Thus, the budget deficit is funded by a national debt.

A healthy practice for any government is to have a balanced budget, but Keynesian economists propose deficit budgeting to overcome a financial crisis. Even with deficit budgeting, the healthy way is to have revenues exceeding non-interest outlays and this excess must be good enough to pay for the interest on government debt to avoid a rising ratio of debt to GDP.

In case of India with a 210 billion dollar budget, its deficit pegs at about 6.8 percent of GDP, and when combined with those of state governments, it reaches a hefty figure of 10 percent of the GDP. Comparatively, leading countries of the world work with an average budget deficit of 4 percent of their respective GDPs. India borrows about 10 percent of its GDP every year. With current debt on India being about 75 percent of its GDP, it is required to pay a heavy interest on the borrowings.

Implications of heavily deficit budgets in India are -
Economic growth in impeded,
Real incomes of the people is lower than their apparent incomes,
Inflation in prices of commodities makes life of common people miserable, higher government borrowing, preventing a decline in interest rates.
Through deficit budgeting, a high government spending is proposed to compensate for falling public spending to keep the markets in good business. This shows that deficit budgeting is…...

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