ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As there are three sources of borrowing for the government, gross fiscal deficit is also estimated as the sum total of borrowing from RBI, borrowing from abroad and net borrowing at home. Hence, borrowings are equivalent to fiscal deficit.

Detailed explanation-2: -Gross fiscal deficit may be written as = Total Expenditure-(Revenue Receipts + Non-Debt creating capital receipts). The Gross Fiscal Deficit (GFD) is known as the excess of total expenditure including loans net of recovery over net of revenue receipts and non-debt capital receipts.

Detailed explanation-3: -Earlier referred to as deficit financing, the Government can finance the Fiscal Deficit by borrowing from the Reserve Bank of India in lieu of government securities. This increases the money supply and can lead to inflation.

Detailed explanation-4: -Q. Fiscal deficit is the difference between the government’s total expenditure and its total receipt, including borrowings.

Detailed explanation-5: -Generally, the safe limit of fiscal deficit as a percentage of GDP is considered to be the maximum 3%. When the fiscal deficit crosses the 3% mark for any country, then it is a worrying sign, especially for the developing economy. Higher fiscal deficit will start affecting the economic growth of the country.