Budget 2023: Why is fiscal deficit shown in proportion to GDP? increase your knowledge here

The general budget of the country is going to be presented on 1 February 2023. Whether business, what market, from the common man to the poor section has a lot of hope from this budget. The reason for this is the last full budget of the current government’s tenure, because in 2024 general elections are to be held within the country. But the biggest challenge in front of Finance Minister Nirmala Sitharaman in this budget will be to manage the fiscal deficit.

First the Covid crisis and then the global situation arising out of the Russia-Ukraine war has increased the burden on the exchequer significantly. In the last year’s budget, the government had projected a fiscal deficit target of 6.4 per cent of GDP, ie Rs 16.61 lakh crore. But by the end of November itself, the government’s fiscal deficit reached 59 percent of the target. But have you ever wondered why fiscal deficit is always shown in proportion to GDP.

What is fiscal deficit?

If you understand the fiscal deficit, it shows the difference between the expenditure and income of the government. When government expenditure is more than its income, then the government remains in deficit, this is its fiscal deficit. This is the main indicator showing the condition of the country’s economic health. It shows how much borrowing the government needs to meet its expenses.

Generally, there are two reasons for increasing fiscal deficit. Firstly, the revenue deficit, that is, the revenue that the government had estimated in the budget, was less achieved. Second, increasing capital expenditure or capital expenditure of the government. The government spends a huge amount on infrastructure development in the country, which affects the country’s GDP in the long term. The government compensates for this huge increase in expenditure by borrowing, hence its fiscal deficit increases.

What is the GDP of the country?

english full form of gdp Gross Domestic Product and in Hindi it Gross Domestic Product is called. So the GDP of a country is the total value of all goods manufactured and services available there within a year. If understood in simple language, any kind of production in the country is related to the value creation of GDP.

When GDP is calculated, it includes the expenditure or wealth creation by the common man. At the same time, the investment of business houses, profit of import-export business and government’s expenditure in the economy are also included.

Relation of GDP and Fiscal Deficit

Actually, the government spends a lot of money in the form of capital expenditure to contribute to the GDP. At the same time, to meet its expenditure, it also takes the amount as tax from the economy itself. Therefore, what was the actual contribution of the government to the economy, it is calculated by the difference between the government’s expenditure and tax collection.

After this, it is seen that how much value has the government added in real terms to the GDP and in comparison to that what is the deficit of its treasury. That’s why fiscal deficit is calculated in proportion to GDP.