As per the union budget 2022, In 2022-23, States will be allowed a fiscal deficit of how much percent of its GSDP?

The correct answer is 4%.

Important Points

Providing Greater Fiscal Space to States : Budget 2022

• The enhanced outlay for ‘Scheme for Financial Assistance to States for Capital Investment’
• From Rs. 10,000 crores in Budget Estimates to Rs. 15,000 crore in Revised Estimates for the current year
• Allocation of  Rs. 1 lakh crore in 2022-23 to assist the states in catalysing overall investments in the economy: fifty-year interest-free loans, over and above normal borrowings.
• In 2022-23, States will be allowed a fiscal deficit of 4% of GSDP, of which 0.5% will be tied to power sector reforms.

​ Additional Information

 What is Fiscal Deficit?

• The government describes fiscal deficit of India as “the excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year”.
• In simple words, it is a shortfall in a government's income compared with its spending.
• The government that has a fiscal deficit is spending beyond its means.
• It is calculated as a percentage of Gross Domestic Product (GDP), or simply as total money spent in excess of income.
• In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.
• Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts).
• It is different from revenue deficit which is only related to revenue expenditure and revenue receipts of the government.
• The government meets the fiscal deficit by borrowing money. In a way, the total borrowing requirements of the government in a financial year is equal to the fiscal deficit in that year.
• A high fiscal deficit can also be good for the economy if the money spent goes into the creation of productive assets like highways, roads, ports and airports that boost economic growth and result in job creation.
• The NK Singh committee (set up in 2016) recommended that the government should target a fiscal deficit of 3% of the GDP in years up to 31st March, 2020, cut it to 2.8% in 2020-21 and to 2.5% by 2023.