Breaking down budget jargons, one term at a time. In the run up to the Budget, we will be decoding one finance jargon per day.
Fiscal deficit is the difference between the government's total revenue and total expenditure. It usually occurs due to a major deficit in the government's revenue or hike in capital expenditure which is incurred to create and set up long term assets like roads, factories, buildings and overall sector development.
There are three dominant ways the government can raise money. First, through the various taxes it levies, second through borrowing by issuing bonds which can be held by both citizens and foreigners, and third by printing fresh money. The gap between how much the government is earning and how much extra money it needs for its expenditure is usually financed through borrowing either from the central bank of the country i.e., the Reserve Bank of India, or from capital markets by issuing different instruments like treasury bills and bonds.
In last year's Budget, Finance Minister Arun Jaitley proposed a fiscal deficit target of 3.5% of GDP for 2016-2017, after achieving the stated target of 3.9% of GDP in 2015-2016. While presenting Budget 2016, Jaitley said he would set up a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act and determine whether there should be a range for fiscal deficit range targets instead of set numbers. This would provide the necessary policy space to the government.
To stimulate the economy in the backdrop of a global slowdown, the Budget proposed a 15.3% higher expenditure of Rs 19.78 lakh crore in 2016-17, out of which Rs 5.50 lakh crore was allotted under Plan expenditure while Rs 14.28 lakh crore was set for for non-Plan expenditure. However, the government announced that come 2017-18, it would do away with the classification of Plan and non-Plan expenditure, and replace it in order to capture the spending pattern more appropriately.
In terms of expenditure, Jaitley announced a total outlay of Rs 2.21 lakh crore which would be made for infrastructure, from which Rs 97,000 crore would be put in the road sector including on rural roads. He announced that a major focus on the government's expenditure would be on agriculture, farmer welfare and provided Rs 35,984 crore for it and Rs 87,765 crore for the rural sector. Jaitley pegged Rs 1.51 lakh crore for the social sector which includes education and healthcare. He also increased the outlay for defence by 13% from Rs 1.43 lakh crore in 2015-16 to Rs 1.62 lakh crore in 2016-17. The Finance Minister last year also announced an increase in capital expenditure on defence from Rs 81,400 crore to Rs 86,340 crore.
On the revenue front, Jaitley stated that the central government's total tax revenue was projected to grow at 11.24% to Rs10.54 lakh crore in 2016-17 from Rs 9.47 lakh crore in 2015-2016.
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