On account of growing burden of non-development expenditure the fiscal situation deteriorated throughout the 1980s and assumed critical proportion by the beginning of 1991-92.
Throughout the eighties all the major indicators of fiscal imbalance clearly reflected that it was on the rise. The indicators, which are often considered to assess the fiscal imbalance, are the conventional budgetary deficit, the revenue deficit, the gross fiscal deficit, and the primary deficit.
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Fiscal Imbalance:
The fiscal deficit as a proportion of GDP was 6.1 % at 2008-09 (RE), compared with 2.7 per cent in 2007-08. The revenue deficit, a measure which reflects the excess of current expenditure over the current receipts, was estimated 4.5% of GDP in 2008-09, compared with 1.1% of GDP in 2007-08 (RE).
The primary deficit i.e. the fiscal deficit net of interest payments, which is an indicator of the current fiscal stance of the government, was 2.5 percent of GDP in 2008-09 compared with 0.9 per cent in the previous year.
The Centre has projected fiscal deficit to fall to 4.6 percent in 2011-12. The Prime Minister’s Economic Advisory Council (PMFAC) report said capital flows this fiscal (2011-12) were likely to rise to $72 billion from $61.9 billion in 2010-11.
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After 1991, the government has taken many steps towards fiscal consideration. These steps can be grouped into tax reforms and expenditure reforms.
Tax Reforms:
(i) Lowering down lax rates to discourage tax evasions; (ii) Rationalisation of lax rates- – reducing tax slabs; (iii) Introduction of VAT in many states; (iv) Simplification of tax system; (v) Computerisation of tax system; (vi) Increasing share of direct taxes in total tax receipts.
Expenditure Reforms:
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(i)Reduction in subsidies on fertilisers, sugar, kerosene, LPG, petrol, etc.; (ii) Right-sizing of government staff; (iii) Restructuring of loss making PSUs; (iv) Introduction of new pension scheme: (v) Introduction of VRS.
It seems it will take some time to bring down fiscal deficit as per the FRBM Act due to recessionary trends prevailing.