DEFICITS - Economics, UPSC, IAS. UPSC Notes | EduRev

Economy and Indian Economy (Prelims) by Shahid Ali

UPSC : DEFICITS - Economics, UPSC, IAS. UPSC Notes | EduRev

The document DEFICITS - Economics, UPSC, IAS. UPSC Notes | EduRev is a part of the UPSC Course Economy and Indian Economy (Prelims) by Shahid Ali.
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DEFICITS

EficitsDEFICITS

Types Deficits

  • Revenue deficit
  • Fiscal deficit
  • Primary deficit
  • Monetized deficit

Deficits,Economics,UPSC,IAS,Test Preparation

Revenue Deficit

  • When Revenue Expenditure exceeds revenue Receipts
  • Fiscal deficit
  • When total expenditure (Revenue + Capital) exceeds total receipts (Revenue + Capital).

Primary deficit

  • Fiscal deficit – interest payments

Monetized deficit

  • It is a part of fiscal deficit provided by the RBI

Deficit financing

  • The act f supporting a deficit budget by a government
  • First used in USA in 1930s
  • India tried it in 1969

Means of deficit financing

  • External borrowings
  • External aids and grants
  • Internal borrowings
  • Printing currency

Fiscal Responsibility Budget Management (FRBM) Act 2003

Main Highlights:

  1. To reduce Fiscal & Revenue deficit so as to eliminate revenue deficit by 31st March 2008
  2. Annual targets 9 Revenue deficit by 0.5 % per annum and Fiscal deficit by 0.3% p.a
  3. Fiscal deficit and revenue deficit may exceed targets only on the grounds of National security, calamity etc
  4. GoI not to borrow from RBI except by Ways & Means Advances (WMAs)
  5. RBI not to subscribe to the primary issue of GoI securities from 2006-07
  6. To ensure greater transparency in fiscal operations
  7. Each year GoI to lay 3 statements in the parliament
    1. Fiscal policy strategy statement
    2. Medium term fiscal policy statement
    3. Macroeconomic framework statement
  8. Finance Minister to make quarterly review of trends in receipts & expenditure in relation to Budget
  9. In 2006-07, in case of the Central government, proposed reduction in revenue and Fiscal deficit were put at 0.6 % and 0.5% respectively (higher than the FRBMA Rules), though the reduction suffered in 2005-06 due to higher devolution to states by centre on account of the recommendations of 12th Finance Commission. Sates also showed considerable improvement. The fiscal deficit of the states declined by 1.6% post FRBMA from 4.5 % in 2003-04 to 2.6% in 2006-07 of their GDP
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