How does India's fiscal deficit effect the common man ?

India’s **fiscal deficit**—the gap between the government’s total spending and its revenues (excluding borrowings)—has direct and indirect consequences for the common man. Here’s how it impacts daily life, savings, and the broader economy:

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### **1. Higher Taxes & Reduced Subsidies**

- **Why?** To bridge the deficit, the government may:

  - **Increase taxes** (e.g., higher GST, income tax slabs, or fuel taxes).  

    - *Example*: A 1% rise in GST on essentials (like packaged food) directly increases household expenses.  

  - **Cut subsidies** (e.g., LPG, fertilizers, food grains under PDS).  

    - *Example*: A ₹50/kg reduction in urea subsidy raises farmers’ input costs, leading to costlier vegetables.  

**Impact**: Reduced disposable income for middle- and lower-income families.  

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### **2. Inflation & Cost of Living**

- **Borrowing-Driven Spending**:  

  - The government borrows heavily (₹15–16 lakh crore/year) to fund the deficit, increasing demand for money.  

  - This can lead to **higher interest rates** (RBI may hike repo rates to curb inflation).  

    - *Result*: Loans (home, car, education) become costlier. EMIs rise.  

- **Printing Money (Deficit Financing)**:  

  - If the RBI prints money to fund the deficit, excess liquidity fuels inflation.  

    - *Example*: A 5% fiscal deficit can push CPI inflation up by **1–2%**, making groceries, fuel, and healthcare costlier.  

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### **3. Reduced Public Welfare Spending**  

- **Funds Diverted to Debt Servicing**:  

  - In FY25, India will spend **₹11.9 lakh crore** (26% of revenue) just to pay interest on past borrowings.  

  - This leaves less money for:  

    - **Healthcare** (e.g., Ayushman Bharat),  

    - **Education** (school infrastructure),  

    - **Infrastructure** (roads, electricity).  

**Impact**: Poorer public services, longer waits in govt. hospitals, and inadequate schools.  

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### **4. Job Market & Wage Stagnation**  

- **Private Investment Crowded Out**:  

  - High govt. borrowing sucks up capital, leaving less for private businesses to expand.  

  - *Result*: Fewer jobs created, especially in MSMEs (which employ 80% of India’s workforce).  

- **Wage Pressure**:  

  - Stagnant private investment → Low wage growth. Salaries fail to keep up with inflation.  

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### **5. Currency Depreciation & Imported Inflation**  

- **Rating Downgrades Risk**:  

  - A rising deficit can worry global agencies (like Moody’s), leading to rupee depreciation.  

    - *Example*: A 10% weaker rupee makes petrol, electronics, and imported medicines costlier.  

- **Fuel Prices**:  

  - India imports 85% of its crude oil. A weaker rupee + high global oil prices = **₹100+/liter petrol**.  

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### **6. Pension & Savings Returns**  

- **Low Interest on Small Savings**:  

  - To manage borrowing costs, the govt. may cut rates on PPF, NSC, or post office schemes.  

    - *Example*: PPF rates fell from **8.7% (2016)** to **7.1% (2024)**.  

- **Stock Market Volatility**:  

  - High deficits spook FIIs, causing market crashes. Retail investors’ portfolios shrink.  

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### **7. Indirect Long-Term Costs**  

- **Future Tax Burden**:  

  - Today’s deficits are tomorrow’s taxes. Younger generations will pay for current borrowing.  

- **Infrastructure Delays**:  

  - Projects (like highways, metros) get stalled due to fund shortages, prolonging commute times.  

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### **How the Common Man Can Protect Themselves?**  

1. **Beat Inflation**:  

   - Invest in **equities (SIPs)**, **gold**, or **real estate** to outpace inflation.  

2. **Reduce Debt Exposure**:  

   - Avoid taking loans during high-rate cycles. Prepay existing debts.  

3. **Diversify Income**:  

   - Side hustles (freelancing, rentals) to counter wage stagnation.  

4. **Track Govt. Policies**:  

   - Budget announcements (Feb 1) and RBI policies hint at future tax/inflation trends.  

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### **Recent Example (FY24)**  

- India’s fiscal deficit: **5.8% of GDP** (vs. target of 5.9%).  

- **Impact**:  

  - Petrol prices up **12%**,  

  - Home loan EMIs rose **3–5%** (due to RBI rate hikes),  

  - Subsidies on LPG cut by **₹200/cylinder**.  

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### **Key Takeaways**  

- Fiscal deficit isn’t just a number—it hits your wallet through **taxes, inflation, jobs, and public services**.  

- Smart financial planning (investing early, reducing debt) can mitigate its effects.  

> 💡 **Watch Out**: The 2024 interim budget aims to reduce the deficit to **4.5% by FY26**. If achieved, it could ease pressure on interest rates and inflation.  

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