VIEW ON BUDGETARY DEFICIT AND PUBLIC DEBT OF INDIA

1. BUDGETDEFICIT
AND
PUBLICDEBT
Sharing India Experience

2. CONTENT
INTRODUCTION
DEBATE ON
BUDGET
DEFICITS AND
ITS
MEASUREMENT
TREND AND
BUILDUP OF
INDIA’S DEBT
FISCAL
HISTORY IN
INDIA
EXTERNAL AND
INTERNAL
BALANCE :
IMPORTANCE
OF FOREIGN
FLOWS FOR
INDIA
CURRENT
SCENARIO
CONCLUSION

3. INTRODUCTION
THE GLOBAL FISCAL PROBLEM
• The global economy is in the midst of a very serious crisis,not
experienced earlier. It includes poor regulatory framework, global
imbalances and growing budget deficits in the US, lead country of the
episode.
IMPORTANCE OF COUNTRY SPECIFIC STRATEGIES
• The understanding about differences in economic and socio-political
condition across nation is important for the developed countries, which
is looking for alternative strategies to obtain sustained growth in long
term future. The emergence of highly populous countries in forefront of
growth trajectory of the global economy cannot be ignored and new
dynamics is bound to emerge.the developed countries need to look at
these countries and in particular,INDIA differently.

4. DEBATE ON BUDGET DEFICITS
AND ITS MEASUREMENT
KEY ARGUMENT FAVOURING
FISCAL EXUBERANCE
• Domestically held debt are not as
harmful, while it provides stimulus to
private sector
• The spending by the present
government could not be treated as
burden on future generations
• Even if budget deficits reduce national
savings, that in turn do not decrease
growth in long term.
KEY ARGUMENT AGAINST FISCAL
EXUBERANCE
• Crowding out of private investment
• Rise in interest rate and increasing tax
burden to service the debt
• Inflationary accommodation
• Even if deficit is financed by domestic
borrowing, in the long run it could be
inflationary once it became difficult to
service the debt
• Increasing national debt leading to
sovereign risk
• crises

6. Recommendation of 12th Finance commission ,the government enacts Fiscal Responsibility
and Budget Management(FRBM) Act 2003, which seeks to reduce and maintain fiscal deficit to
3% of GDP bt the central and states governments under a time frame.
The central government extends guarantees primarily on loans from multilateral/bilateral
agencies to various public sector undertakings/ public sector financial institutions.
The 13th Finance commission was mandated to find justification and method of inducing
Goods and Services tax (GST) in order to further simplify taxation and removing double
taxation and export of taxes

7. TREND AND BUILDUP OF INDIA’S
DEBT

10. EXTERNAL AND INTERNAL BALANCE:
THE IMPORTANCE OF FOREIGN FLOWS FOR
INDIA

12. By 1985, India had started having balance
of payments problems. By the end of
1990, it was in a serious economic crisis.
The government was close to default, its
central bank had refused new credit and
foreign exchange reserves had been
reduced to such a point that India could
barely finance three weeks’ worth of
imports which led the Indian government
to airlift national gold reserves as a
pledge to the International Monetary Fund
(IMF) in exchange for a loan to cover
balance of payment debts

13. INTERPRETATIONS
 continuous decrease in capital expenditure or
revenue deficit of the central government,
 throughout increase in borrowing/debt of the
central government,
 constant increase in loans and advances given
by the central government,
 initially revenue receipts were more than
revenue expenses, but then there is a
continuous decrease in revenue receipts
leading to revenue deficits.

14. India’s deficit and debt dynamics can be
characterised as adverse on following
grounds:
While deficit is increasing, the share of
capital formation out of budget is
decreasing. Therefore, income multiplier
to government expenditure may not be
enough to cover the debt liability in long
run.
Government debt dynamics is unstable
with large variability and therefore, it
lacks credible predictability of future
path.
Exposure of the economy to non-
government external debt in increasing
and therefore, there is a case to conduct
analysis about the economic returns to
such borrowings in terms of long terms
sustainability.

15. REFERENCE
Source (basic data): Reserve Bank of India and Central
Government Budget Documents; India’s External Debt: A
Status Report Ministry of Finance(various) .
www.
rbi.org.in
 www.
finmin.nic.in
 www. india.gov.in

16. GROUP 2:
Garima Goyal
Anju Maurya
Abhishek Jaiswal
Jyoti Raj
Kunal Khatri