What is the Fiscal Deficit? Meaning, Formula & India’s Current Data

A fiscal deficit happens when a government spends more money than it earns. The government borrows money to fill the gap between income and expenses.

Formula: Fiscal Deficit = Total Expenditure - Total Revenue (excluding borrowings)

Example: Let’s say the Indian government earns ₹34.96 lakh crores from taxes and other sources. However, it spends ₹50.65 lakh crores on various programmes and projects. This creates a deficit of ₹15.69 lakh crores. The government must borrow this ₹15.69 lakh crores from banks or other lenders. This borrowed amount becomes the fiscal deficit for that year.

Fiscal Deficit Table

The table shows India's fiscal deficit trend over three years from 2023 to 2025.
 

The fiscal deficit has increased significantly from ₹4 lakh crores in 2023 to ₹15.69 lakh crores in 2025.

Governments use fiscal deficits to fund important projects like roads, schools, and hospitals. However, too much borrowing can create future problems.

1. Components of Fiscal Deficit

The government collects money from three main sources: direct taxes, indirect taxes, and non-tax income. Direct taxes include income tax and company tax. Indirect taxes include GST, customs duty, and excise duty on goods. Non-tax income includes dividends from government companies and fees.

The government spends money in two ways: revenue spending and capital spending. Revenue spending covers salaries, pensions, subsidies, and interest on loans. Capital spending builds roads, railways, hospitals, and other infrastructure. The government also funds defence, education, and healthcare.

If the government spends more than it earns, it runs a fiscal deficit. To cover this gap, it borrows money from banks, financial institutions, and markets. This borrowing adds to the national debt, which future generations will have to repay.

The table breaks down the government's revenue sources and expenditure types that create the fiscal deficit.
 

The analysis shows that government expenditure exceeds revenue by ₹2,00,000 crore, highlighting the significant spending gap.

Total expenditure of ₹26,00,000 crore exceeds revenue of ₹24,00,000 crore, creating a ₹2,00,000 crore fiscal deficit.

2. Causes of Fiscal Deficit

Many factors cause India’s fiscal deficit each year. When the economy slows down, the government collects less tax because companies earn less profit and people earn less income.

Government spending goes up during crises and natural disasters to help people and businesses. Social welfare programmes like food subsidies and job schemes also cost money. Big projects like building roads and hospitals need large investments over many years.

The government also pays interest on past loans, which raises expenses. Higher borrowing costs make the deficit worse. Defence spending, salary hikes, and pension payments add to the costs too.

The table shows how various factors impact government revenue and expenditure, contributing to the fiscal deficit.

 

These causes result in a net deficit increase of ₹10,00,000 crore through reduced revenue and higher spending.

3. Impact on the Indian Economy

India’s fiscal deficit affects its economic growth in several ways. A high deficit can cause inflation because the government borrows more money. Too much borrowing leaves less money for businesses to invest, which slows growth and job creation.

But the deficit can also help the economy. Government spending on roads and infrastructure creates jobs and boosts activity. Investing in education and healthcare improves skills and health. Social welfare programmes help reduce poverty and inequality.

Foreign investors watch India’s fiscal deficit closely. A high deficit can reduce their confidence, causing them to take money out and weaken the currency. Credit rating agencies also look at the deficit when rating the country.

The table shows the positive and negative economic effects of India's fiscal deficit.
 

The fiscal deficit creates a net positive economic impact of ₹70,000 crore overall.
 

4. Government Measures to Control Deficit

The Indian government uses several ways to reduce the fiscal deficit. It increases tax collection through better rules and new policies. It also raises money by selling shares in public sector companies, which is called disinvestment.

Cutting wasteful spending is another key step. The government saves money by removing duplicate schemes and working more efficiently. Direct benefit transfers reduce corruption, and digital tools help track spending better.

The government also borrows from abroad at lower interest rates and sells bonds in global markets. For big projects, it uses special-purpose vehicles to bring in private investment.

The table shows the government's targets versus actual achievements in deficit reduction measures.
 

The government achieved 78.5% of its deficit reduction targets across all measures.

5. Future Outlook and Challenges

The Indian government uses several ways to reduce the fiscal deficit. It increases tax collection through better rules and new policies. It also raises money by selling shares in public sector companies, which is called disinvestment.

Cutting wasteful spending is another key step. The government saves money by removing duplicate schemes and working more efficiently. Direct benefit transfers reduce corruption, and digital tools help track spending better.

The government also borrows from abroad at lower interest rates and sells bonds in global markets. For big projects, it uses special-purpose vehicles to bring in private investment.

The table outlines major future challenges facing India's fiscal management and their mitigation strategies.
 

Despite facing ₹19,00,000 crore in future challenges, reforms can make the fiscal impact manageable.

Conclusion

Fiscal deficit remains a key challenge for India's economic management. The government must balance growth needs with fiscal discipline carefully. Smart policies and efficient spending can help reduce the deficit over time. 

Citizens benefit when governments use borrowed money for productive investments. Proper fiscal management ensures sustainable economic growth for future generations.

FAQs
 

Q1: What is the fiscal deficit in simple terms?

A: Fiscal deficit happens when the government spends more money than it earns.

Q2: How does the government fund the fiscal deficit? 

A: The government borrows money from banks and financial markets to fill the gap.

Q3: Is fiscal deficit always bad for the economy? 

A: No, it helps fund important projects like roads, schools, and hospitals.

Q4: What is India's current fiscal deficit target? 

A: India aims to keep the fiscal deficit at 4.8% of GDP in 2024-25.

Q5: How can the government reduce the fiscal deficit? 

A: The government can increase tax collection and reduce unnecessary spending to control the deficit.