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Question
Union Finance Minister Mrs. Nirmala Sitharaman announced during her Budget speech that the Centre would reduce its fiscal deficit to 5.1% of gross GDP in 2024 – 25. (The present fiscal deficit is 5.8% of GDP.)
(Source: Union budget 2024 – 25)
What would be the impact of this decision on government borrowing? Why?
Solution
Decision of reduction of fiscal deficit will lead to a decrease in government borrowing because
Fiscal deficit = Total expenditure of the government − (Revenue receipt + Recoveries of loans + other receipts of the government) = Borrowing and other liabilities of the government.
Therefore, a reduction in the fiscal deficit will lead to a reduction in borrowing.
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