The fiscal deficit determines how much foreign investment will flow into a country’s growth by providing an accurate idea of how much revenue it has been making as compared to spending. The value of the Rupee, already under pressure, is also determined by a surge in the fiscal deficit for India. For the first six months of September, the fiscal deficit has already touched 37 per cent of the entire year’s estimate, at 6.20 lakh crore.
Spending more than it has collected
This gap has been caused because the Indian government spent Rs 18.24 lakh crore, while it only made little over Rs 10 lakh crore from taxes in the month. Of this sum, the GST collection between April and September surged close to Rs 9 lakh crore. The revenue from the Goods and Services Tax is expected to surpass Rs 1.5 lakh crore for the month of October.
What it does to the economy
Fiscal deficit rising can lead to a downgrade in the ratings of a country, which means that it may struggle to get loans and foreign investments. The fiscal deficit is described in terms of the percentage of a country’s gross domestic product that it represents.
How will you be hit?
This leads to a change in the dearness allowance and pension that is allotted to government employees, and could also sway the taxes that are imposed on fuel. This year, the Indian government has increased dearness allowance for employees, while cutting down excise duty on petrol and diesel, while a Rs 22,000 crore compensation has also been approved for oil firms. When fiscal deficit widens, the government has to borrow money for bridging the gap, which leads to higher interest rates.
Systematic investment plans (SIPs) are also impacted when a higher fiscal deficit leads to downgrading of ratings for India. The Finance Minister Nirmala Sitharaman has stated that India aims to reduce fiscal deficit from 6.7 per cent of the GDP last year to 6.4 per cent this year.
