Fiscal imbalance, Microeconomics

Fiscal Imbalance:

The persistent rise in resource gap has led to a growing volume of public debt. The central feature that emerges is a serious fiscal imbalance, arising from the inability of the Government to control the growth of revenue expenditure. Taking the long view, revenues have risen from only 8.4 per cent of GDP in 1950-51 to the current 19 to 20 per cent. However, expenditure has grown faster after starting from a larger base. It has risen from 9.5 per cent of GDP in 1950-51 to around 29 per cent at present. Hence, the fiscal balance has remained in deficit throughout and the deficit has grown to over 9 per cent of GDP. The revenue account deficit has, however, arisen only since the mid-eighties, resulting in a progressive crowding out of Government capital expenditure from around that time.  

The overall deficit has led to a number of adverse effects on both short-term macro-economic outcomes as well as the longer-term growth prospects of the Indian economy. Financing a large and growing deficit has resulted in the accumulation of a huge public debt. The public debt - GDP ratio has risen from under 30 per cent in 1981-82 to over 75 per cent at present, and there are serious concerns now regarding the sustainability of the debt. The interest on public debt is now the fastest growing component of revenue expenditure, which, in turn, is the principal component of total expenditure responsible for driving up the deficit. Financing the deficit requires fresh borrowing, which expands the stock of debt. This leads to further increase in the expenditure on interest payments, further expanding the deficit. 

A major weakness of Government finances has been the inability to curtail revenue expenditures.  The structural character acquired by revenue imbalances during the 1990s has been a critical factor underlying the rigidity of fiscal imbalances and explains as to why fiscal correction has not been durable during the 1990s. Thus, the combined fiscal deficit at the end of the decade was the same as at the beginning at around nine per cent of the GDP.

Posted Date: 11/15/2012 1:56:23 AM | Location : United States







Related Discussions:- Fiscal imbalance, Assignment Help, Ask Question on Fiscal imbalance, Get Answer, Expert's Help, Fiscal imbalance Discussions

Write discussion on Fiscal imbalance
Your posts are moderated
Related Questions
Health and Life Expectancy: In addition to struggling on low income, many people in the developing nations fight a constant battle against malnutrition, disease and ill healt

Q. Explain about Natural Monopoly? Natural Monopoly: In some industries, economies of scale are so strong that it makes most economic sense for there to be just one supplier. T

Compensated Demand Curve: Compensated demand function for a commodity (say x1) of an individual consumer represents demand quantity for that good (which is purchased by the co

Expected Value - The weighted average of payoffs or values resulting from all the possible outcomes. The probabilities of every outcome are used as weights Expected

You are the CFO for Carnival Corportaion and your boss, the CEO informs you that he wants to add three new cruise ships to the company''s inventory. Each ship will cost $500 millio

What two measures have been developed in recent years that subtract for the depreciation of both manufactured capital and natural capital? The environmentally adjusted Net Dome

Axioms: It is possible to construct a utility index which can be used to predict choice in uncertain situations if the consumer conforms to the following five axioms:  • A

how can we solve central problems of economy in different econmy?

Planned Order Releases - MRP System In an MRP system, if gross requirements exceed the quantity on hand and on order, a net requirement results. Planned orders are created to

Dialectic Inquir y It is a technique for group decision making in which members are forced to "debate" both sides of a matter. Dialectic inquiry forces consideration o