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In a government budget, non-debt creating capital receipts is ₹ 200, revenue receipts are ₹ 1,500, borrowings are ₹ 150 while capital receipts and revenue receipts are respectively ₹ 250 and ₹ 300. What will be the fiscal deficit in this case?
  • a)
    ₹ 150
  • b)
    ₹ 300
  • c)
    ₹ 500
  • d)
    Can't be determined
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
In a government budget, non-debt creating capital receipts is 200, re...
Calculation of Fiscal Deficit:

Fiscal Deficit = Total Expenditure - Total Receipts (excluding borrowings)

Total Receipts (excluding borrowings) = Non-debt creating capital receipts + Revenue receipts - Capital receipts

= 200 + 1500 - 250

= 1450

Total Expenditure = Revenue Expenditure + Capital Expenditure

= 300 + 250

= 550

Fiscal Deficit = Total Expenditure - Total Receipts (excluding borrowings)

= 550 - 1450

= -900

Since the fiscal deficit is negative, it means that the government has a surplus budget. However, this is not possible as borrowings are also present in the budget. Therefore, we need to consider borrowings as well.

Fiscal Deficit = Total Expenditure - Total Receipts

= 550 - (200 + 1500 + 150)

= -300

Since the fiscal deficit is negative, it means that the government has a surplus budget. However, this is not possible in reality. Therefore, we need to reverse the sign of the fiscal deficit.

Fiscal Deficit = -(-300)

= 300

Therefore, the fiscal deficit in this case is 300, which is option (b).
Community Answer
In a government budget, non-debt creating capital receipts is 200, re...
Fiscal deficit is equal to borrowings of the given period. So, fiscal deficit will be equal to ₹ 150
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The advice of the expert committee to review the Fiscal Responsibility and Budget Management (FRBM) Act of 2003 requires attention, given Indias track record.Excessive and unsustainable borrowing by the government is obviously perverse as it entails a cost on future generations while crowding out private investment.In the past, fiscal irresponsibility has cost jobs, spiked inflation, put the currency in a tailspin and even brought the country to the brink of a default. The possibility of default may have resulted in the liberalisation of the economy in 1991, but the key trigger was irrational public spending on borrowed money in the late-1980s. Less than a decade later, with fiscal discipline faltering and the deficit shooting up to 10% of GDP, the FRBM law was enacted to limit the governments borrowing authority under Article 268 of the Constitution. But the target to limit the fiscal deficit to 3% of GDP (by 2009) was breached after the 2008 global financial crisis as a liberal stimulus reversed the gains in the fiscal space, creating fresh macro-level instability. The FRBM Acts deficit target is now only likely to be met next year.Such damage transmissions from the political economy to the real economy need to be checked forthwith. The committees proposal to maintain the 3% target till 2019-20 before aiming for further reduction is pragmatic, as the extraordinary and unanticipated domestic development of demonetisation happened during its tenure. Such an event, the committee has said, could trigger an escape clause from fixed fiscal targets in its proposed rule-based framework.Q. Based on the authors arguments in the passage above, which of the following would be most correct: The largesse towards voters in the political economy can lead to fiscal imprudence which affects the fiscal deficit and the FRBM targets. Intergenerational parity and private investments in the country are negatively affected by excessive government borrowings.Select the correct answer using the code given below

The advice of the expert committee to review the Fiscal Responsibility and Budget Management (FRBM) Act of 2003 requires attention, given Indias track record.Excessive and unsustainable borrowing by the government is obviously perverse as it entails a cost on future generations while crowding out private investment.In the past, fiscal irresponsibility has cost jobs, spiked inflation, put the currency in a tailspin and even brought the country to the brink of a default. The possibility of default may have resulted in the liberalisation of the economy in 1991, but the key trigger was irrational public spending on borrowed money in the late-1980s. Less than a decade later, with fiscal discipline faltering and the deficit shooting up to 10% of GDP, the FRBM law was enacted to limit the governments borrowing authority under Article 268 of the Constitution. But the target to limit the fiscal deficit to 3% of GDP (by 2009) was breached after the 2008 global financial crisis as a liberal stimulus reversed the gains in the fiscal space, creating fresh macro-level instability. The FRBM Acts deficit target is now only likely to be met next year.Such damage transmissions from the political economy to the real economy need to be checked forthwith. The committees proposal to maintain the 3% target till 2019-20 before aiming for further reduction is pragmatic, as the extraordinary and unanticipated domestic development of demonetisation happened during its tenure. Such an event, the committee has said, could trigger an escape clause from fixed fiscal targets in its proposed rule-based framework.Q. Recently, FRBM is amended to remove the bar of 3% of Fiscal Deficit. In such a situation, based only on the authors reasoning in the given passage, would the removal of bar from the FRBM be held valid?

In a government budget, non-debt creating capital receipts is 200, revenue receipts are 1,500, borrowings are 150 while capital receipts and revenue receipts are respectively 250 and 300. What will be the fiscal deficit in this case?a) 150b) 300c) 500d)Cant be determinedCorrect answer is option 'A'. Can you explain this answer?
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