Revieced Fiscal Deficit

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iscal Deficit rends and Components

By Darshita Shah



content

Brief about Fiscal Deficit

Objectives of Fiscal Policy

Components of Fiscal Deficit

Trends

At global level

Measures

conclusion



q The term ‘fisc’ means treasury thus fiscal policy means policy related to treasury.qqq Fiscal policy comprises of public revenue , public expenditure and public debt.q

qqqq It has important place in modern times particularly after the great economic

depression of thirties.q

qqqqq The Fiscal deficit is the difference between the government’s total expenditure

and its total receipts.

Brief about Fiscal Deficit



omponents of fiscal deficit

ü Revenue Receipts• Tax revenue

• Non Tax revenue

üü Capital Receipts• Recovery of loan• Other receipts

ü

ü Total Expenditure•

• Plan and non plan expenditure



Trends

In 15years of period from 1975-90 fiscal deficitgoes rose from 4.7% to 7.9% of GDP

Non plan revenue expenditure on defense,interest payments, food and fertilizer subsidiesrose sharply in 1980s

Reforms were taken up from the year 1991 torestore the fiscal deficit.



Trends

. %As such the fiscal deficit reduced to 4 1 in-1996 97

- . %Rose again in 2000 01 and stood at 5 6 Fiscal responsibility and budget

( )management FRBM bill was introduced in 2000

and FRBM act was passed in 2003

As a result deficit has been reduced & standat 3.6% in 2006-07



-960 1990

Corporate taxation initiated

Oil shocks in 1973 and 1979

Exemption on agricultural income in 1974

Subsidy rose sharply during 1980s

MODVAT in 1986

BOP crisis



( %)evenue Receipts in



( %)xpenditure in



-Fiscal deficit 1960 1990



1990 to 2009

qReformsqLPGqKargil war

q The undue debt burden is cripplingqNCMP policy (2004-05)qFarmer’s loan waiverqSixth pay commissionqHigh inflation

qGlobal crisis



Revenue & Expenditure

: -Source economic survey 2006 07



- : .After 1987 1991 the trends decreases due to tax reforms , .Indirect taxes coming down direct taxes starts increasing - , ; , ,In 2007 08 lowering in Excise duties growth in Automobiles Drug

.Pharmaceuticals sectors etc

.Abolition of numerous exemptions and concessions - : .1971 77 Oil seeds and black pepper import increases , .Depend on Exchange rate domestic production level - , , , .In 2008 2009 Basic exemption limit raise to 1 50 000



Fiscal deficit till 2009



r Revenue Receipts



Capital Receipts



Total Expenditure





t global level

Bangladesh is being lauded for controlling wasteful subsidies - -Nepal has a revenue to GDP ratio far higher than India and has

.been running fiscal and current account surpluses

, ,Pakistan despite all its struggles has been recently upgraded& ’by the global ratings firm Standard Poor s for its efforts.at fiscal consolidation

( . %)Pakistan 4 4

( %)Sri Lanka 8•

( . %)China 3 4 ( . %)Indonesia 0 8

•



The Largest Fiscal Deficit among World’s Major Economies



Measures

Reducing Public Expenditure

Increasing Revenue from Taxation



conclusion

The fall in inflation after 1998 implied the loss.of an important source of revenue

Reducing government spending as a proportion of

.GDP in India is probably not an alternative ’India s fiscal situation requires immediate

.attention

The most respected rating agency in the world’recently revised India s status from STABLE to. -NEGATIVE The reason because of our fiscal.deficit



Fiscal journey

Thank you



Bibliography

India macroeconomics and political economy by Joshi and Little

Indian economy part 1st and 2nd

RBI handbook http://indiabudget.nic.in/previouses.htm

Macroeconomics –theory and policy by Dr. H. L.Ahuja

Economic survey 2008-09

’

http://indiabudget.nic.in/previouses.htm

http://indiabudget.nic.in/previouses.htm



tax

- : . %In 1 9 5 0 5 1 le ss to ta l ta x co lle ctio n m e re 6 3 1 ;La u n ch in g o f fiv e Ye a r p la n in 1 9 5 0 in cre a se in

& ,im p o rts m a n u fa ctu rin g e xcise d u ty

.in te rm e d ia ry g o o d s :After 1951 expansion in administrative and

.welfare activities of the Government

- :After 1987 1991 the trends decreases due to tax.reforms

,Indirect taxes coming down direct taxes starts

.increasing



…ont

- ; ,In 1957 58 for Administrative reasons there was. , . , .reduction from Rs 4 200 to Rs 3 000

- ,In 2008 2009 Basic exemption limit raise to

, , .1 50 000



ustom duty tax

- - :1950 51 to 1970 71 Protective trade policy and.dwindling of foreign reserves reduced

.Abolition of numerous exemptions and concessions - :1971 77 Oil seeds and black pepper import

.increases ,Depend on Exchange rate domestic production

.level



- : .1976 77 Fertilizer retention price introduce - : &1979 81 Oil price doubled increase custom

.revenue - :1990 91 Progressive decrease in import duty and

.increase in export duty - :1993 94 Reduction in tariff and corporate tax

.reduce custom duty



tax

- :1990 91 Tax Reforms .Income tax in gross tax revenues increases

%.Corporation tax increases to 30 - - - : . %2005 06 2007 08 9 2 Service Tax was also

.included



tax

- : = . %1950 51 Excise duty modest 16 8 of Central.tax collection

- : ;1970 71 breakdown numerous exemptions and

.concessions Substantial legal and administrative complexity

.with increase in litigation

.Burden of duties falls on all section of society - , ;In 2007 08 lowering in Excise duties growth in

, , .Automobiles Drug Pharmaceuticals sectors etc



exp

- : - . % . %.1990 91 Ratio to GDP decline 28 8 to 25 1 - : - . %.1997 98 Trend follow upward movement 29 5

: & -Reason National sub national levels of.Government expenditure correction .Cut in Capital Expenditure



ubsidy exp

- : . % .1991 92 Decrease in Subsidy to 1 11 of GDP : &Reason Reform Rationalization of

,Fertilizer subsidy decontrol of Phosphate& .NPK

&Drastic variation in the price of Wheat

.Paddy - :2001 02 Release of food grain at concessional

.rates .The prices of Wheat and Rice get reduced : .2002 Subsidization in the oil sector



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Revieced Fiscal Deficit