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REL ATIONSHIP BET W EEN

FISCAL DEFICIT
AND
TRADE DEFICIT
P R E S E N T E D BY:
NEHA MEENA PGP31157
HEMENTH PGP
AKASH OBED SINGH PGP
J AYA S S I N G H - F P M 1 7 0 0 7

FISCAL DEFICIT
FISCAL DEFICIT

Afiscal deficitoccurs when a government's total


expenditures exceed the revenue that it generates,
excluding money from borrowings.

Fiscal deficit = Total expenditure Total receipts


excluding borrowings.

TRADE DEFICIT
T R AD E D E FI C I T

The amount by which the cost of a country's imports


exceeds the value of its export

B.O.T = Price of exports x Quantity of exports - (Price of


imports) x Quantity of imports.

FISCAL DEFICIT OF INDIA

Of the total expenditure, plan spending was Rs.90,570 crore and non-plan
was over Rs.2.1 trillion. The revenue deficit during the two month was over
Rs.1.99 trillionor 56.2% of the estimates, CGA data showed. For the 201617 year, the government aims to restrict fiscal deficit to Rs.5.33 lakh crore or
3.5% of the GDP.

TRADE DEFICIT IN INDIA

The trade deficit in India narrowed 38.1 percent year-on-year toUSD 7.67
billionin August of 2016 from a USD 12.4 billion gap a year earlier. Exports
edged down 0.3 percent to USD 21.5 billion, mainly due to oil while nonpetroleum sales which accounted for 88.7 percent of total exports rose 1.79
percent.

Govt. Expenses

Govt. Receipts
Tax Sources

Revenue Expenses

Non-tax Sources

Capital Expenses

Revenue Receipts

F IS CAL DEF ICIT = G OVER NME NT EXPEN SES G OVER NM ENT


RECEIPTS

Capital Receipts

USA BUDGET 2011

USA GDP = $ 15.52 trillion


Fiscal deficit = $ 3.6 2.4
=$ 1.2 trillion
Fiscal deficit as % of GDP =
7.73

FISCAL DEFICIT- INDIA 2006-2016

Comparison of Fiscal
deficit
2015
Fiscal deficit
Countr (As a % of
y
GDP)
USA

-2.5

India

-3.9

China

-2.3

Japan
Norway

-6.5
+6.6

SOURCES OF FINANCING FISCAL DEFICIT?


1. Borrowings:
Fiscal deficit can be met by borrowings from
the

internal sources (public, commercial banks etc.) or

external
sources
(foreign
international organisations etc.)

governments,

2. Deficit Financing (Printing of new


currency)
Government may borrow from RBI against
its securities to meet the fiscal deficit.
RBI issues new currency for this purpose.

IMPLICATIONS OF LARGE FISCAL DEFICIT?


Debt trap
Borrowings not only involve repayment of
principal amount, but also require payment
of interest
Interest payments increase the revenue
expenditure, which leads to revenue deficit
Government takes more loans to repay
the earlier loans.

Foreign dependence
Government also borrows from rest
of the world, which raises its
dependence on other countries

Inflation

Government mainly borrows from Reserve


Bank of India (RBI) to meet its fiscal deficit.
RBI prints new currency to meet the deficit
requirements.
It increases the money supply in the
economy and creates inflationary pressure

Hampers future growth


Borrowings increase the financial
burden for future generations

When and why is fiscal


deficit bad?
Creates Inflation
Government is spending
money on unproductive
programmes
No economic gains

When and why is Fiscal


Deficit acceptable?
Government is spending money
on productive programmes

RELATIONSHIP
Fiscal Deficit
High
Spending
or Lower
Fiscal
Deficit
Taxes
Aggregate Demand
Increase in Consumer
Spending
Higher Economic
Growth
& Possibly Inflation
Increase in Import lead to
Trade Deficit

INDIA

INDIA

CHINA

INFLATION

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