This is Budget Explained from DH Radio, answering your frequently asked questions on Union Budget 2021. In this episode, we look at the concept of fiscal deficit and the role it plays in the Budget. Fiscal deficit is the difference between the government's total expenditure and its total revenues excluding money generated from borrowings.
The government borrows from market, small savings fund, state provident funds, external sector and short term funds. Market borrowing, however, is the major source to finance the fiscal deficit.
The government has to borrow more or ask RBI to print more money if the fiscal deficit rises. But the printing of currency has its side effects. It leads to inflation and raises interest rates. Therefore, no government wishes to finance the fiscal deficit by printing money. It prefers borrowing.
Tune in to know more about fiscal deficit.