Model Question and Answers for APSC | What is Fiscal Deficit? What is the target of Fiscal deficit as per the FRBM Act? Why are there demands for having flexibility in FRBM fiscal deficit target in the recent post-COVID situation? (APSC Mains-2020)

Model Question and Answers for APSC | What is Fiscal Deficit? What is the target of Fiscal deficit as per the FRBM Act? Why are there demands for having flexibility in FRBM fiscal deficit target in the recent post-COVID situation? (APSC Mains-2020)

Ans : The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
The target of Fiscal deficit as per the FRBM Act:
1. Enacted in 2003, it sets targets for the government to reduce fiscal deficits. Calculated as a percentage of its GDP, fiscal deficit is the total money spent by the government in excess of its income.
2. It also brings greater transparency in fiscal operations of the government. Another objective was to introduce more equitable distribution of India's debt over the years
3. During the Union Budget, FRBM documents are presented under the provisions of the Act. These documents are the medium-term fiscal policy, macro-economic framework and fiscal policy strategy.
4. The FRBM Act mandates the central government to bring down its fiscal deficit to 3% of GDP. The initial deadline to reach the 3% target was 2007-08 but it has been extended several times over the years. In 2018, the deadline was again extended to 2020-21.
Demands for having flexibility in FRBM fiscal deficit target
1. However, in the FY21 Budget, the target was relaxed to 3.5% as permitted under the FRBM Act.
2. The Centre made use of escape clauses to deviate from the fiscal consolidation road map. The option allows the government to widen the deficit by 0.5 percentage points in times of exigencies such as a war or calamities of national proportion.
3. Because of higher expenditure and lower revenues on account of COVID-19, the number in FY21 came in at 9.3% of the GDP. To enable the fiscal deficit beyond the permissible limit, the government amended the FRBM Act in the Finance Bill 2021- 2022.
4. For the ongoing fiscal, the Centre is targeting a fiscal deficit of 6.8%, to be gradually brought down to below 4.5% in the next four years.