Explained: Why govt stresses so much on Fiscal Deficit? Its impact on economy

New Delhi, July 09: Every time when the budget draws near, we start hearing this term Fiscal Deficit and even the leaders in the government assert that finance ministry wants to stick to Fiscal Deficit target at any cost. During Prime Minister Narendra Modi's first term, then Finance Minister Arun Jaitley spoke of Fiscal Deficit on many occasions and firmly stressed that it is very important that it remians within a certain limit.

So what exactly is Fiscal Deficit? It is essentially the difference between total revenue and total expenditure of the government. Fiscal Deficit would be a positive number if a government's total expenditures exceed the revenue that it generates. Fiscal Deficit that is spoken about in the Budget, is expressed as the percentage of the GDP.

To understand this, we can roughly take example of a house hold and try to explain. If the net income of a family is Rs 30,000 per month, and the net spending (total sum of money spent by all the members) is say 32,000 per month, the deficit would be 32,000 - 30,000 i.e. Rs 2,000. Which means that the family will have to either borrow Rs 2,000 to meet the expenses and draw it from previous savings. In the context of a nation, it is calculated on an yearly basis. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.

In the Budget presented on Friday, the government lowered the fiscal deficit target to 3.3 per cent of the GDP for 2019-20 as compared to 3.4 per cent projected in the interim Budget in February. Primary deficit refers to the deficit left after subtracting interest payments from the fiscal deficit. Finance Minister Nirmala Sitharaman had said she is duty-bound to follow glide path to achieve fiscal deficit target of 3 per cent as per the law.