Question

how the fiscal deficit create the requirement of economic reform?​

Answer 1

Answer:

View about Fiscal Deficit:

How does fiscal deficit affect economic growth is a hotly debated issue. A number of Keynesian economists argue that fiscal deficit promotes growth.

In India where in the last some years since 1996, a good deal of industrial capacity has been lying idle due to lack of aggregate demand, and there has been enough stocks of food grains, it was asserted that fiscal deficit would stimulate demand and thereby ensure rapid economic growth.

In the prevailing economic situation especially from 1996 to 2004 the Indian economy was a demand-constrained economy and therefore the increase in aggregate demand through larger fiscal deficit did not generate inflationary pressures in the economy. If the increase in public expenditure made possible by large fiscal deficit is used for productive investment, especially for investment in infrastructure and rural development, it will boost production and help increase employment opportunities in the economy.

In fact, increase in public investment in infrastructure such as irrigation, roads, highways, is doubly beneficial from the viewpoint of acceler­ating economic growth. It helps in increasing aggregate demand on the one hand and helps to reduce supply constraints on economic growth on the other.

So the focus should not be so much on reducing fiscal deficit but on reducing revenue deficit. Recall that revenue deficit is the excess of government revenue expenditure (i.e. current consumption expenditure) over revenue receipts.

From the begin­ning of the nineties since economic reforms have been initiated, there has been large revenue deficits so that a large part of borrowings by the government has been used to bridge the revenue deficit. As a result, capital expenditure on investment in infrastructure and rural development as a percent of GDP declined which has adversely affected economic growth.

Explanation:

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Answer 2

Answer:

A number of Keynesian economists argue that fiscal deficit promotes growth.In India where in the last some years since 1996,a good deal of industrial capacity has been lying due to lack of aggregate demand,and there has been enough stock of food grains it was asserted that fiscal deficit would stimulate demand and thereby ensure rapid economic growth.

Explanation:

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