Govt. may cut spending to curb deficit

Govt. may cut spending to curb the deficit

Syllabus subtopic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Prelims and Mains focus: on the govt’s move to cut expenditure and its implications on the economy; on fiscal deficit

News: The government is likely to cut spending for the current fiscal by as much as Rs.2 trillion (Rs. 2 lakh crore) as it faces one of the biggest tax shortfalls in recent years.

Background

Economic growth slowed for six consecutive quarters to 4.5% in JulySeptember, despite a 135basispoint cut in interest rates by the Reserve Bank of India (RBI) in February 2019.

Likely implications of the move

Asia’s third largest economy, which is growing at its slowest pace in over six years because of a lack of private investment, could be hurt further if the government cuts spending.

But with a revenue shortfall of about Rs. 2.5 trillion, the government has little choice to keep its deficit within “acceptable limits”.

The Centre has spent about 65% of the total expenditure target of Rs. 27.86 trillion till November but reduced the pace of spending in October and November, according to government data.

An Rs. 2 trillion reductions would be about a 7% cut in total spending planned for the year. In October and November, government spending increased by Rs. 1.6 trillion, nearly half the Rs. 3.1 trillion it spent in September. Lack of demand and weak corporate earnings growth in the economy led to lagging tax collections this year. Analysts said growth will be hurt.

Now, even the RBI seems to have become more worried about inflation rising. It kept its key lending rate on hold on December 5, though it slashed its growth forecast for the current fiscal to 5%, which would be the lowest in a decade. Even a surprise corporate tax rate cut announced by Finance Minister Nirmala Sitharaman earlier this year failed to spur private investment in the economy.

Way ahead

The Centre is likely to keep the fiscal deficit under 3.8% of GDP. It is likely to announce additional borrowing of Rs.300500 billion for the current year to match the revised fiscal deficit.

About fiscal deficit

The fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing).
Fiscal deficit in layman’s terms corresponds to the borrowings and liabilities of the government.
As per the technical definition, Fiscal Deficit = Budgetary Deficit + Borrowings and Other Liabilities of the government.

Note:

Deficit differs from debt, which is an accumulation of yearly deficits. The elements of the fiscal deficit are revenue deficit and capital expenditure.
A revenue deficit is a difference between the government’s revenue expenditure and total revenue receipts.

Source: The Hindu

Join Our Telegram

Statistics panel on economic data holds 1st meet

Spectre of fresh NPAs looms over banks this year

Oceanic Anoxic Event 1a and MASS EXTINCTION

25 Dec, 24
SHARE

Oceanic Anoxic Event 1a from the Paris Basin (Environment) Paper-3 PMP OAE 1a refers to a period during the Cretaceous Period (145 million years ago and ended 66 million years ago) when Earth's oceans became depleted of oxygen, causing a significant disruption in marine life. Cause: The event is believed to have been

Viksit Panchayat Karmayogi (Good governance)

26 Dec, 24
SHARE

Viksit Panchayat Karmayogi (Good governance) Governance GS PAPER-2 PMP Dr. Jitendra Singh launched the ‘Viksit Panchayat Karmayogi’ initiative on Good Governance Day, celebrated to mark the 100th birth anniversary of former Prime Minister Atal Bihari Vajpayee. The initiative, which is part of the broader ‘Prashasan Gaon

Major programmes to control Air Pollution

23 Dec, 24
SHARE

Major programmes to control Air Pollution National Clean Air Programme? It was launched by the Ministry of Environment, Forests and Climate Change (MoEFCC) in January 2019. It is the first-ever effort in the country to frame a national framework for air quality management with a time-bound reduction target. The

Air pollution and Air quality Measures in India

21 Dec, 24
SHARE

Air pollution and Air quality Measures in India (Environment) GS Paper-3 P-M-P Air pollution may be defined as the presence of any solid, liquid or gaseous substance including noise and radioactive radiation in the atmosphere in such concentration that may be directly and/or indirectly injurious to humans or other l

Geopolitical Significance of Ports

20 Dec, 24
SHARE

Geopolitical Significance of Ports (IR) Act as geopolitical assets: Ports enhance the projection of strategic reach, which helps strengthen the country’s control over important sea and energy supply routes. E.g. Indian Navy’s staging base at Agalega Islands will enable marine patrols