Explain the concept of fiscal deficit and its implications in the Indian economy.
Understand the significance of fiscal deficit and its effects on the economy.
- Fiscal deficit refers to the difference between the government's total expenditure and its total revenue (excluding borrowings) in a fiscal year.
- A high fiscal deficit indicates that the government is spending more money than it is generating through revenue sources like taxes and fees.
- Implications of a high fiscal deficit in the Indian economy include increased government borrowing, which can lead to higher interest rates and inflation.
- High fiscal deficit limits the government's ability to invest in infrastructure and social welfare programs, affecting economic growth.
- It also puts pressure on the government to increase taxes or reduce spending in the future to balance the budget.
- Managing fiscal deficit is crucial for maintaining macroeconomic stability and sustainable economic growth.
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