Fiscal Deficit: Meaning, Targets and Impact on India
Why in the news
A concept explainer on how the fiscal deficit is measured, where India stands against its targets, and why a persistent gap matters.
Key facts
- Fiscal deficit: expenditure less receipts, borrowings not counted as receipts.
- Primary deficit: fiscal deficit minus interest outgo.
- Narasimham Committee (1997-98) recommended introducing the measure.
- Debt-to-GDP ratio = total debt / GDP; it peaked at 88.5% in 2020-21.
| Indicator | Figure |
|---|---|
| FY24 fiscal deficit | 5.63% of GDP |
| 2023-24 estimate | 5.8% of GDP |
| Target | Below 4.5% of GDP by 2025-26 |
| 2024-25 borrowing plan | ₹14.13 lakh crore |
Financing the gap
- Chiefly bond market borrowing; RBI OMO influences it, and excess OMO feeds inflation.
- Post-pandemic lending rates rose, so borrowing costs more.
- FRBM Review (2023) advised a 60% debt-to-GDP level.
Impact of a high deficit
- Inflation, higher interest rates, crowding out of private borrowers.
- Debt trap for future generations and pressure on credit ratings.
Exam angle
- Formula and the primary deficit link.
- Law: FRBM Act, 2003; committee: Narasimham.