Union Budget 2014: How the fiscal deficit numbers affect you and me?

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oi-Sunil

By Sunil Fernandes

Published: Thursday, July 10, 2014, 8:47 [IST]

With hours to go for the Union Budget 2014, the common man should among other things watch out for the fiscal deficit, because it always affects him or her. We tend to always look at recommendations that directly impact us. However, the fiscal deficit also tends to affect us. Fiscal deficit is nothing but the excess of the government's income over expenditure. Here is how the fiscal deficit affects you and me.

Credit squeeze

A higher fiscal deficit means the government tends to borrow more. When the government tends to borrow, it pushed the government's borrowing programme higher, resulting in a credit squeeze, leaving lesser money with banks to meet an individuals ability to borrow.

Pushes interest rates higher

When there is lesser amounts to lend there is pressure on interest rates, which tends to move higher. These means when individuals like you and me step out to borrow, interest rates are high. This affects home loan, personal loan, auto loan and gold loan interest rates. When interest rates are high economic growth is stunted.

Sovereign rating downgrades

One of the key numbers that global rating agencies like S&P and Moody's watch is the fiscal deficit numbers. If it has gone completely haywire, they downgrade the sovereign ratings of the country. When that happens there is a flight of foreign capital away from the country.

Stock markets tumble and business sentiments is affected

A flight of capital means stock markets tumble, business sentiment is affected and investors lose confidence. To regain that confidence takes years. Ask countries like Greece about it.

So, watch out for the fiscal deficit numbers for 2014-15, which is likely to be estimated at 4.3% of GDP. The Government of India's deficit is currently 5.3 lakh crore.

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