Question

Union Finance Minister Mrs. Nirmala Sitharaman announced during her Budget speech that the Centre would reduce its fiscal deficit to 5.1% of gross GDP in 2024 – 25. (The present fiscal deficit is 5.8% of GDP.)

(Source: Union budget 2024 – 25)

What would be the impact of this decision on government borrowing? Why?

Answer 1

Decision of reduction of fiscal deficit will lead to a decrease in government borrowing because

Fiscal deficit = Total expenditure of the government − (Revenue receipt + Recoveries of loans + other receipts of the government) = Borrowing and other liabilities of the government.

Therefore, a reduction in the fiscal deficit will lead to a reduction in borrowing.