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Mahesh

23/06/22 20:42 PM IST

Twin Deficit Problem in India

In News 
  • Recently Finance Ministry report indicated that India is facing the twin deficit problem.
Major Findings 
  • Monthly Economic Review report noted that, Fiscal deficit has increased, possibly due to cuts in excise duties on petrol and diesel.
  • Oil prices have surged due to ongoing Russia-Ukraine crisis. It has led to deterioration in current account deficit because of higher oil import bill.
  • As per report, India will continue to be the fastest growing economy in 2022-23, among major countries.
  • India, unlike other countries, is at low risk of Stagflation because of its prudent stabilization policies.
  • Rupee can weaken if foreign portfolio investors (FPI) continue to pull out money from Indian markets, considering the higher interest rates in western economies especially the US. It will hurt rupee and further
Fiscal Deficit 
  • The shortfall in a government’s income, as compared to its spending, is called the fiscal deficit.
  • It is amount of money, that is borrowed by government to fill the gap between its revenues and expenditures in any financial year.
  • If the fiscal deficit is high, it means, government takes the investible funds in market for itself, which otherwise could have been used by private sector for investment needs.
CAD 
  • When the total value of goods and services imported by a country becomes higher than total value of goods and services it exports, it is called as Current Account Deficit (CAD).
  • Widening CAD is responsible for weakening to domestic currency, because CAD means more foreign currencies or dollars are in demand as compared to domestic currency (or rupees).
Measures needed 
  • Government should cut its revenue expenditure.
  • Capital expenditure should be rationalized, in order to avoid fiscal slippages.
  • Tight monetary policy should be used, to achieve fiscal consolidation
  • Import of non-essential goods should be cut and exports of Indian goods should be made competitive.

Source- Indian Express 

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