SOME IMPORTANT ECONOMIC TERMS

FISCAL DEFICIT

The rising fiscal deficit has dominated all discussions on the budget. The excess of government's expenditure over its tax and non-tax revenues has to be met with borrowings from the public. This borrowing is called fiscal deficit, which is usually expressed as a percentage of GDP. A high fiscal deficit runs the risk of government cornering the bulk of the savings, leaving little for corporate and other borrowers, or what is called crowding out. Prolonged periods of high fiscal deficit run the risk of raising interest rates and inflation and depressing growth. A deficit of 3% of GDP is seen as sustainable. In the current year, the government has budgeted a fiscal deficit of 4.6 % Of GDP.

REVENUE DEFICIT

Revenue deficit is an important control indicator. All expenditure on revenue account should ideally be met from receipts on revenue account. Ideally, revenue deficit should be zero, else the government debt will keep rising. Revenue deficit means the government is essentially borrowing to consume, a recipe for financial disaster. Ideally, government borrowing should fund asset creation, which will yield returns in the future.

PRIMARY DEFICIT

The primary deficit is fiscal deficit minus interest payments the government makes on its earlier borrowings. It is another indicator to judge the quality of the government deficit.

FINANCING OF FISCAL DEFICIT

Market borrowings are the biggest source of funds for meeting the fiscal deficit. The government also takes a portion of the funds raised through small savings by issuing securities to the fund that manages small savings. A part of deficit is also met through external sources of funds. Provident fund accumulations of state government employees is also available for meeting the fiscal deficit.

FRBM ACT

Enacted in 2003, the Fiscal Responsibility and Budget Management Act had proposed to eliminate revenue deficit by 2008-09. The Act also mandates a 3% limit on fiscal deficit after 2008-09. The 2008 financial crisis and the economic slowdown that followed forced the government to abandon the path of fiscal consolidation. A new fiscal consolidation framework is expected in the budget for 2012-13.