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This post will focus on the negative consequences of a high Fiscal Deficit.Before that, let me address a pertinent question:Where does the Government of India borrow from?The three major sources of borrowing for the Government of India are (a) RBI, (b) foreign lenders (sovereign governments and international organizations like IMF and World Bank), and (c) from the general public of our country.Contrary to popular perception, the Government of India borrows most from the general public, through the issue of bonds (pretty much like fixed deposits).What are the adverse consequences of Fiscal Deficit?A high Fiscal Deficit is bad for the general state of the economy, foreign trade balance, and currency exchange rate.Rising Interest RatesA high Fiscal Deficit means the Government of India s (GOI, or just government) borrowings are high. When the government borrows money from the general public, it creates demand for money.Lending to government carries zero risk, as the government would not default on repayment (it has not defaulted till date!).However, greater government borrowing would mean less money is available for lending to industrial and other sectors of the economy. This would push up interest rates for the borrowers from the industry and other sectors of the economy.Reduced Business Economic ActivityHigher interest rates would add to overall cost of production, thereby increasing the cost of operations. This in turn would render business activity, like increased production and expanding operations, unviable. Hence, a lot of businesspersons would opt out of such economic activity as they no longer find it profitable.Reduced Income Employment GenerationIf due to higher interest rates businesspersons opt out of economic activity (or close down plants), it would lead to reduction in employment generation. This would in turn mean that the retrenched (those thrown out of jobs) and the unemployed do not earn income, thus reducing their purchasing power.If purchasing power goes down, then their aggregate demand for goods and services would also go down. This in turn would also reduce industrial activity, therebydepressing overall economic scenario.Lowers Exchange Rate Increases Trade DeficitSometimes the government of India would borrow from foreign sources. When the government is lent money, foreign exchange comes into the economy. This would increase the supply of the foreign currency, which in turn would be exchanged for the Indian rupee.The rise in demand for the Indian currency would increase its value. Simply put, as foreign entities begin to exchange their currency for Indian rupee, the value of the Indian rupee will also increase.For example, the exchange value of the Indian rupee for each U.S. dollar is 72. In this scenario, let s say, when a foreign entity is exchanging its currency for Indian rupee in large volumes, the exchange value may fall to 70 per U.S. dollar.This means that while earlier one U.S. dollar would have fetched 72, now it would fetch only 70. This would hurt exports and encourage imports.How?As an importer, in the past, you were paying 72 per U.S dollar of import while now you are paying only 70. This means that your cost of operations would also fall.However, if you are an exporter, then this would mean that you would earn less from your exports; like earlier you were earning 72 for every U.S. dollar of export, it is only 70!If exports go down and imports go up, the country's trade deficit would rise.Also, high borrowings now would mean that the country's financial position becomes precarious as itpiles higher debt and interest burden on future generations.In short, a high Fiscal Deficit is dangerous in every way possible: for general economic activity, employment generation, exchange rate, and trade balance.Today's article focuses on Fiscal Deficit.What types of receipts are non-debt creating?Revenue Receipts, Recoveries of Loans, and Other Receipts are all non-debt creating. This means that the government does not have to borrow to generate these sources of income.Now, look at the accompanying table: Fiscal Deficit is numbered 22, Revenue Receipts is 1, Recoveries of Loans is 5 and Other Receipts is numbered 6.Hence,(22) Fiscal Deficit = (16) Total Expenditure [(1) Revenue receipts + (5) Recoveries of loans + (6) Other Receipts]Revenue Receiptswould include both tax and non-tax revenue of the Government of India (GoI).What is tax revenue?This refers to revenue that the GoI gets by way of collecting taxes, like Personal Income Tax, Corporate Tax (charged on incomes of companies), Central Sales Tax and Service Tax.What is Non-tax revenue?This would include Stamp Duty and Dividends earned from Public Sector Units (PSUs). Dividend is the return on capital invested by the government in PSUs.Sometimes the Government of India receives money that it would have lent to some country/organization in the past. When such money is received, it is recorded under the Recoveries of Loans head.When does Fiscal Deficit arise?Fiscal Deficit arises when the government has expenditure higher than the revenue it generates. To bridge this expenditure-revenue deficit, the government resorts to borrowing. This borrowing is called Fiscal Deficit.In short, fiscal Deficit is the total borrowing of the Government of India to fund the allocations and expenditures listed in the Union Budget.In the table above, the Budget Estimate for Fiscal Deficit for 2020-21 (total borrowing) was projected at Rs7,96,337 crore. But the economic ravage brought about by the Covid pandemic destroyed major sources of tax and non-tax revenues.The shortfall in Gross Tax Revenue (includes GST, Income Tax, Corporation Tax and other taxes) was Rs5,22,740 crore. The projected figure forGross Tax Revenue in 2020-21 was Rs24,23,020 crore, but the Central Government could collect only Rs19,00,280 crore.So, the Revised Estimates for 2020 21 show a Fiscal Deficit of Rs18,48,655 crore.In other words, what this figure means is that the Government of India is borrowing this huge amount of money in 2020-21! Yes, you got it right: a total borrowing of mind-numbing Rs18.48 lakh crore in one year!Fiscal Deficit is usually expressed in terms of percentage of the country s Gross Domestic Product (GDP).Now, go to the bottom of the table. It is mentioned that India s GDP in 2020-21 will be Rs194,81,975 crore (Rs194.8 lakh crore).Taking India s GDP to be Rs194,81,975crore in 2020-21, the Fiscal Deficit of Rs18,48,655 crore works out to 9.5% of GDP.So, to say that we are living way beyond our means would be an understatement. However, given the Covid pandemic-induced shutdown there was little elbow room for the Central Government to raise revenue and hence, it had to resort to very heavy borrowings to fund its welfare schemes. like providing free food grains and direct cash transfer to millions of heavily impacted vulnerable sections of the society.In the next post, I will write on how a high Fiscal Deficit could spell doom for the economic growth of the country.In India, there is hardly any economic event that captures popular imagination as much as the Union Budget. In this Budget series, The Explainer will focus on the complex budget jargon that puts off even 'interested-in-budget' souls.What is a Fiscal Year?Any twelve-month period that is used for submission of accounts, taxation purposes and to state financial reporting by private and public sector companies is called a Fiscal Year.In India, the Government has laid down the provision that the 12 month starting on April 1 and ending on March 31 of next year will be treated as a Fiscal Year.To put it in perspective, this article is being written on 31 January 2021, i.e., in Financial Year 2020 21(FY21). This is also called Fiscal Year 21.In the same way, the financial year for 2021 22 will start on 1 April 2021 and will end on 31 March 2022. So on 1 April 2021, we will enter Fiscal Year 22.What is the Economic Survey?The Finance Minister's Budget Speech contains two major components: Part A and Part B.Part A of the Speech contains the Economic Survey whilePart B comprises the Union Budget Speech.TheEconomic Survey is an assessment of the performance of the Indian economy in the financial year going by. For example, the Economic Survey 2020 21 presents an assessment of the performance of the Indian economy in that financial year (i.e., 2020 21).The Economic Survey 2020 21 was tabled on 29 January 2020. You can access it here.What is the Budget?TheUnion Budget is a statement of revenues and expenditures for the coming financial year, i.e., the one that starts on April 1 of this year.Why is the Union Budget presented in February?The Finance Minister of India presented the annual Union Budget for 2021 22in the Parliament of Indiaon February 1.It is typically presented in February (and not in March) for the following reasons:(a)After its presentation, the Budget is tabled in the Parliament so that MPs can, over the next few days, discuss and debate the various provisions listed in the Budget.(b)After the parliamentary debate, any amendment to the original provision (like increasing or decreasing the allocation for a said ministry/program and rolling back any budget proposal) will have to be tabled, discussed, passed, and brought into law by the Parliament.(c)Also, the administrative system, especially in case of tax administration, would need to be geared up to reflect any change in the financial, taxation or any other system.I hope this is good! Please leave feedback in the comments section.In this Explainer,I will focus on the ambitious Mohammed Bin Salman, the CrownPrince of SaudiArabia. MbS, as he is usually referred to, has, in a very short time, come todominate the tangled political landscape of West Asia (I prefer this term to theusual Middle East).An aside on the name:In Saudi society (and generally in the Arabian Peninsula), a man s nameincludes the name of his father (pretty much like in large parts of India). Binmeans son of so, Mohammed bin Salman means son of Salman. Also, in thisarticle you would find Mohammed spelt in two different ways; I have taken theSaudi government accepted spellings of the names of the leaders. Who is Mohammed bin Salman? Mohammed bin Salman is theCrown Prince of the Kingdom of Saudi Arabia. As the Crown Prince, he is next inline to succeed his father and King, Salman bin Abdulaziz Al Saud. (Understandingthe name of the King: Salman, son of Abdulaziz; Al Saud is the name of theruling house/dynasty.)Virtually unknownin the corridors of power before his meteoric rise, MbS was appointed the CrownPrince in June 2017. Soon after his father became the King, MbS was appointed theDeputy Crown Prince; his cousin and the son of King Salman s brother Mohammadbin Nayef, was forcibly relieved of his office by MbS.Today he is alsothe kingdom s Deputy Prime Minister, Minister of Defence, Chairman of theCouncil for Economic and Development Affairs, and Chairman of the Council ofPolitical and Security Affairs. MbS is the mostpowerful person in today s Saudi Arabia. The King, his father, trusts himblindly and has stood by him even as the calls for the Crown Prince s removalfor his involvement in the botched Yemen War and the Jamal Khashoggi murdersaga grow louder. MbS is seen as anardent reformer by his supporters, while his detractors describe him asmegalomaniacal and impetuous. His supporters point to the several reforms hehas ushered in the deeply conservative country: lifting the ban on womendrivers, allowing cinemas and music concerts, and introducing a spate ofeconomic reforms. MbS detractors,and there are many, cite his campaign in Yemen and the ill-planned embargoagainst Qatar as examples of his whimsical behaviour. They also describehim as power-hungry who cannot tolerate dissent; the jailing of thousands ofpolitical dissidents, including women activists is a case in point. It isinteresting to know here that the women activists were jailed for demandingdriving rights for women. Ironically, MbS lifted the ban on women drivers andyet the women activists were jailed for calling for the same reform! Now, youmay find this behaviour difficult to decipher. Well, it is easy if youunderstand the purport of MbS game plan: you cannot demand rights and getthem; you will get rights ONLY if the King or the Crown Prince decide to giveyou rights in other words, so it is the top-down approach that s at workhere. Another example ishis treatment of the Prime Minister of Lebanon, Saad Hariri. When Hariri arrivedin the Kingdom to meet King Salman, he was bundled to an unknown location; therewas a complete blackout of the news concerning Hariri, a leader of a sovereignnation. One week later, Hariri was forced to tender his resignation from theprime minister s post of his country from the soil of a foreign nation. A Luxury PrisonThe incident that shook the groundbeneath the feet of elite Saudis took place in November 2017. Around 200prominent Saudis, including the former Crown Prince Muhammad bin Nayef and Bakrbin Laden, the head of Saudi Binladin Group (a construction giant), wererounded up and detained for several months at the Ritz-Carlton Palace Hotel on the orders of MbS. The entireoperation was described as a campaign against corruption and embezzlement; thedetained were accused of enriching themselves at the cost of the Saudi State.It is believed that a few of those detained were tortured and forced intogiving up their wealth. Bakr bin Laden and his two brothers were forced totransfer their 36 per cent shareholding in Saudi Binladin Group to astate-controlled company, overseen by MbS. The Jamal Khashoggi SagaJamal Khashoggi was aSaudi Arabian journalist and an insider in the Saudi royal court. He fled tothe U.S after running afoul of the current royal administration in Saudi Arabia.A vociferous critic of the Saudi Arabian royal house, especially the CrownPrince Mohammad bin Salman, he was a columnist for the Washington Postnewspaper and head of an Arab news channel. MbS had accused Khashoggi ofworking with the Kingdom s rivals like Iran and Qatar.On 2 October2018, he visited the Saudi Arabian consulate in Istanbul to collect documentspertaining to the dissolution of his marriage to a Saudi Arabian woman; thedocuments were necessary for him to get married to his Turkish fiancée. He wasmurdered inside the consulate by Saudi Arabian intelligence officials. Tilldate, no trace of his body has been found. The murder ofJamal Khashoggi has since thrown West Asia into turmoil. The Khashoggi saga hasembroiled Saudi Arabia and Turkey in a war of words, with the U.S. squeezedbetween its two important allies. The following are the major players in theKhashoggi saga: Saudi Arabia, Turkey, the United States, Iran, Qatar, and theMuslim Brotherhood.Erdogan's Wicked GleeTurkey directlyimplicated Saudi Arabia of carrying out the murder on its soil, even pointing afinger at MbS for his involvement. Turkish President Recep Tayyip Erdogan claimedthe possession of unimpeachable evidence of the involvement of the Saudi CrownPrince, suggesting that the order for the murder came from the highestauthorities in the Saudi administration . Why did the Turkish President get soworked up about the murder of a Saudi dissident? The answer to this seeminglydistasteful question lies in the great power ambitions of the two countries. We know that SaudiArabia is the de facto leader of the Muslim World; however, Turkey, under Erdogan,wants to become the centre of the Muslim World, just like the Ottoman empirewas before its eventual collapse in 1922. Erdogan, an Islamist, has a grandvision of becoming the voice of the Muslim World, and he has made no effort toconceal his ambitions. Erdogan is afirm supporter of the Muslim Brotherhood, an Egyptian extremist Islamistorganization with a wide support base in the Muslim World. The MuslimBrotherhood is an anti-monarchy, pro-Sharia group. The Muslim Brotherhood cameto power after its newly floated political party won the Egyptian elections in2012, a development that rang loud alarm bells in the capitals of themonarchies in the Muslim World. Theanti-monarchy, pro-Sharia core ideology of the Muslim Brotherhood raised thehackles of the Saudi monarchy who felt threatened by the hardcore Islamist whowas now the president of Egypt, a neighbouring country. Alarmed by the spectreof the spread of the Muslim Brotherhood s ideology in Saudi Arabia, the SaudiArabia royal house instigated the Egyptian army to oust the Muslim Brotherhoodfrom power and take over the country. Thus, in July 2013, barely a few months aftercoming to power, the Islamist President of Egypt was ousted and jailed oncharges of terrorism. The SaudiArabian involvement in the ousting of the democratically elected government inEgypt angered Erdogan, a die-hard supporter of the Muslim Brotherhood. Themurder of Jamal Khashoggi in Istanbul, Turkey s largest city, came as a blessingto put the Saudis on the mat. He leaked evidence of the involvement of the SaudiCrown Prince in the Khashoggi murder case in a calibrated manner; in fact, themethod was so effective that it has been called death by a thousand leaks . Saudi Arabiabotched its response to the Khashoggi murder saga; from firmly denying itsinvolvement to calling it a rogue intelligence operation without concurrence ofthe royal house, the Saudi Arabian government came across as confused andunprepared for the massive backlash from the international community. To beginwith, the United States called on the Saudi Arabian royal house to come cleanon its role in the Jamal Khashoggi murder. Since then, the U.S. has spoken inmultiple tongues; this is because the Donald Trump White House stood by MbS,even while the Central Intelligence Agency (CIA), the U.S. premier external spyagency, pointed to the direct involvement of the Crown Prince in the murder ofthe journalist. It is well known that there is no love lost between Trump andthe country s numerous spy and security agencies. So, why did the U.S. standby Mohammed bin Salman? Themost important reason for this is Washington s Iran policy. The U.S. policy inWest Asia is centred around Iran; Washington has been categorical in statingthat it will do all to stop Iran s wave of regional destruction and globalcampaign of terror . An enemy senemy is a friend. This truism defines the relationship between the U.S. and theSunni nations in West Asia. The Sunni Muslim nations, like Saudi Arabia and theUnited Arab Emirates, deeply distrust Shia Iran, accusing it of fomentingterrorism in their nations. So, to counter Iran, the U.S. needs Saudi Arabia,the region s most powerful nation and the fulcrum of the Sunni Muslim World. SaudiArabia, under MbS, is at the forefront of the anti-Iran brigade; the Saudis seeIran as an existential threat. In fact, Saudi Arabia even backs Israel (SaudiArabia and Israel do not have diplomatic relations, owing to the Palestinianissue) in the latter s covert and overt operations against Iran, spread acrossthe region, especially in Syria, Iraq, and Lebanon. What about the U.S. professed lovefor the protection of rights of freedom of expression, right to dissent, andreligious freedom? Well,in international politics, respect for democracy, human rights, morality, ideologyare matters of convenience; they can be expended at the altar of nationalinterest. This is my first post in almost a year. From today I will make it a norm to blog.This post is for those who are preparing for Interviews at India's leading b-schools. An interview is, usually, a free-ranging conversation. I am sharing my list of important GK areas to have a better crack at b-school interviews.International Issues Politics, Economics, SocialU.S.: American elections, politics and policies of Donald Trump, violence at U.S. Capitol, names of members of Joe Biden administration.China: Belt Road Initiative (BRI), militarization of South China Sea, political military muscle-flexing, economic problems in China, aging, repression at home (like crushing of dissent - Jack Ma), Coronavirus related issues.West Asia: Recognitionof Israel by leading Arab powers; nuclear ambitions of Iran; normalization of relations between Saudi Arabia and Qatar; Yemen conflict.Korean Peninsula: Political contrasts between NorthKorea and South Korea; North Koreannuclear missile games; South Korea K-Pop culture.Assorted Issues: Brexit and its impact on the UK, elections in Uganda, Swedish strategy in handling COVID, and Nagorno-Karabakh conflict.National Issues Politics, Economics, SocialIndian Economy: GDP growth pangs, problems facing the Indian economy, important facts and figures.Farm bills: Highlights and controversial issues.Stimulus packages:Highlights and various measures, especially concerning MSMEs.COVID:Spread and impact on people, healthcare, governance, and economy (with focus on Mumbai and Kerala models)Assorted Issues:West Bengal politics, environmental issues, and infrastructure problems.This is not an exhaustive list, but I am sure this will provide you with basic preparation issues for interviews at b-schools.A month back I wrote an article on the Citizenship Amendment Act. Today's article is on the NRC and the Assam AccordWhat is the National Register of Citizens (NRC)National Register of Citizens (NRC) has become another political football. TheBJP s decades-old stand on the NRC has remained the same. From the party smanifesto in the 1996 general election to the 2019 general election, the BJPhas remained firm on completing an NRC to curb illegal migration into India,especially in the north-eastern states from Bangladesh. In the 1996 manifesto, the party articulated threeDs: detection, deletion, and deportation detection of illegal immigrants,deletion of their names from the electoral rolls, and deportation to thecountry of their origin. In the 2019 manifesto, the party declared that: There has been a huge change in the cultural and linguistic identityof some areas due to illegal immigration, resulting in an adverse impact onlocal people s livelihood and employment. We will complete the NationalRegister of Citizens process in these areas on priority. In future we willimplement the NRC in a phased manner in other parts of the country. We willcontinue to undertake effective steps to prevent illegal immigration in thenorth-eastern states. For this we will further strengthen our border security. The reader must note that the NRC idea is not theBJP s baby. The NRC idea, first proposed in 1951, took root in the 1970s whenthe All Assam Students Union (AASU) launched a mass movement after its scrutinyof the local electoral rolls revealed names of a large number of illegalBangladeshis. The AASU protested vehemently with its Ds demand: detection,deletion, and deportation detection of illegal immigrants, deletion of theirnames from the electoral rolls, and deportation to Bangladesh. The protestgained popular traction as it touched a raw nerve of the locals: they had been impactedadversely, especially demographically and economically, by the presence of illegalBangladeshis. However, it was only in August 1985 when the Rajiv Gandhi-led CongressGovernment and the AASU signed the Assam Accord. The central feature of theAssam Accord were the 3 Ds: detection, deletion, and deportation detection ofillegal immigrants, deletion of their names from the electoral rolls, anddeportation to Bangladesh.Under the Assam Accord, the Citizenship Act wasamended to include clause 6A that provided for the classification of immigrantsin Assam:those who came before 1966 (including Hindu refugees who fled EastPakistan during the 1965 war);those who came between 1966 and 24 March 1971 (when war with Pakistanofficially commenced); andthose who came after 25 March 1971 (war refugees and later illegalimmigrants).Citizenship was to be given to all those who migrated before 1966 fromeast Bengal and east Pakistan. Those who came between 1966 and 1971 were to bedisenfranchised and granted citizenship after due process. Those who came after24 March 1971 were to be detected and deported.Subsequent governments at both the Centre and inAssam failed to complete the NRC. Fed up with the indifferent attitude of thestate government, the AASU knocked on the doors of the Supreme Court, which ruledthat the NRC, promised under the Assam Accord, must be completed under itssupervision. Now, it is clear that the NRC in Assam was (i) aprovision of the Assam Accord, to which the Congress was a party; (ii) held inthe state after the Supreme Court of India called for its implementation and(iii) the central government has had no role in its completion.The draft NRC in Assam registered 2,89,83,677 out of thestate s 3.3 crore population (census-based). The rest were left out; in otherwords, they could be classified as illegal immigrants . It is here that theBangladesh Government comes in; in case, Bangladesh refuses to acknowledge thesefour million as its own citizens, they run the risk of being labelled stateless .For now, the BJP s flip-flop hasonly muddled the NRC debate. Things get murky when the ruling party does not lendclarity on its current stance, especially considering the several misgivingsabout documentation and proof of citizenship. Identifying illegal foreigners whose job is it? Central Government is vested with powers to deport a foreign national undersection 3(2)(c) of the Foreigners Act, 1946. These powers to identify anddeportillegally stayingforeign nationalshave also beendelegated to the State Governments/ Union Territory Administrations and theBureau of Immigration under the Foreigners Act, 1946. Detection anddeportation of such illegal immigrants is a continuous process. Statistical data of cases regarding illegal immigrants is not centrallymaintained.I think the BJP should run a better PR machine with focus on three central aspects of the CAA:(a) that the CAA is an amendment to the existing Citizenship Act, 1955,(b) that it only speeds up the process of granting citizenship to members ofcertain communities, and (c) that it does not relate to the citizens of India.Bharat C. JainI am employed as a Teacher and an Executive Editor with an education training company. In this space I blog on my favorite interests - politics and economics - and anything else that rouses my curiosity. My Twitter handle is @nocabbagesbj.View my complete profileEco Basics: Dangerous Effects of High Fiscal DeficitT his post will focus on the negative consequences of a high Fiscal Deficit. Before that, let me address a pertinent question: Where does t...

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