Friday, February 26, 2010

How to calculate Fiscal Deficit?

Fiscal Deficit = Difference between country's expenditure and earnings.

Example:

If the country earns Rs. 300, 000 crores and spends Rs. 500,000 crores, then the Fiscal Deficit is Rs. 200,00o crores( i.e the difference between the expenditure and earning).

Fiscal Deficit in terms of GDP:

Usually Fiscal Deficit is expressed in terms of percentage of GDP. GDP is nothing but gross domestic product (GDP) or gross domestic income (GDI), and it is calculated using the formula,

GDP = consumption + investment + Government spending + (exports-imports)

So, if we know the GDP value, we can easily get the Fiscal Deficit in terms of percentage of GDP, with the help of Fiscal Deficit value.

Example - Indian Budget:

In the Financial year 2004 - 05, Government earned Rs 366,560 crore (Rs 3,665.60 billion) and it spent Rs 505,791 crore (Rs 5,057.91 billion). The fiscal deficit stands at Rs 139,231 crore (Rs 1,392.31 billion), which is equivalent to 4.5 per cent of the GDP

Similarly, in the year 2005-06, the government hopes to earn Rs 363,200 crore (Rs 3,632 billion) and plans to spend Rs 514,344 crore (Rs 5,143.44 billion).

The deficit the government plans to run is Rs 151,144 crore (Rs 1,511.44 billion), which is equivalent to 4.3 per cent of the GDP.

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