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  3. Fiscal deficit likely to be held at 4.5% of GDP in FY14

Fiscal deficit likely to be held at 4.5% of GDP in FY14

16 May 2014 Evaluate

India’s fiscal deficit is likely to contain at 4.5% of GDP in the financial year 14, as compared to 4.89% of GDP in the FY13. The fiscal deficit figure at 4.5% of GDP is lower than the government’s revised estimates. The government in its interim Budget has estimated fiscal deficit at 4.6% of GDP at Rs 5.24 lakh crore and revenue deficits at 3.3% at Rs 3.70 lakh crore for FY14. The revenue deficit of the government too would be lower at 3.2% of GDP for FY14.

The fiscal deficit, which is the gap between expenditure and revenue, is expected to come down mainly on account of expenditure compression and higher realisation from the 2G spectrum auction. To contain fiscal deficit, Indian government has taken various measures including banning government departments for holding meetings in 5-star hotels among others to cut spending in non-critical areas. As per the Government’s fiscal consolidation roadmap, the deficit will be reduced to 4.2% in FY15 and 3.6% FY16. India’s fiscal deficit widened to a record high level at 4.89% of GDP in FY14.

High fiscal deficit has adverse impact on country’s economy as it leads to three macro economic problems such as a balance of payments crisis, high interest rates because of crowding out and high inflation owing to the currency depreciation.

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