Fiscal Deficit

All about Fiscal Deficit

Definition of 'Fiscal Deficit: When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings).

Now let us understand what Revenues and expenditures are :

Every family needs to plan their budget so that they don’t go in to the deficit trap. In ideal conditions revenues should always exceed the expenditures.

How revenues are generated:

Tax Revenues: These are those revenues that are generated through the taxes levied on public such as Income Tax, Corporate Tax, Wealth Tax, Fringe benefit taxes (these all are direct taxes i.e. levied on the individual directly), there are some other taxes which in turn are sources of govt. revenues such as, VAT, custom duty, excise duty, service tax (these are types of indirect taxes).

Grants and aids: India enjoys a special love of nature resulting in floods, droughts, lovely Tsunamis (lol), cyclones etc etc etc… So India gets different Grants and Aids from the World banks, ADBs, big boy US, or anybody who wishes to help.

Fines and Penalties: remember that traffic walle bhaiya, sometimes he refuses your chai paani k lie lelo help, All those times the income goes in to govt’s pockets.

Expenditures:

As India is a developing country here Ameer is more Ameer and Gareeb is more Gareeb concepts follow so Govt. has to spend on the different Rajiv Gandhis, Mahatma Gandhis and Pradhan mantris scheme(MNERGA,JNNURAM,PDS schemes etc..).

India is lucky with some peaceful neighbors in the vicinity so India has to spend a chunk of revenues for Defense (Unplanned expenditure).

FRBM Act(Fiscal Responsibility and Budget Management act):

As per the target, revenue deficit, which is revenue expenditure minus revenue receipts, have to be reduced to nil in five years beginning 2004-05. Each year, the government is required to reduce the revenue deficit by 0.5% of the GDP.

How Fiscal Deficit is harmful-

Debt Trap-Fiscal deficit is a type of Debt trap, It creates a deficit which can be filled by extra borrowings or increased taxes creating burden on economy or extra debt

Inflation- The money released by the govt. for different schemes never reaches to the needy and is transferred to the pockets of middlemen who can now buy a new merc or chunks of gold which leads to inflation.

Black money- Now the money that is with the bribe masters cannot be in India because of Income tax officials’ fear so they are transferred to Tax heavens i.e. so called Swiss Banks, this create a shortfall of Taxes in India creating a poor Tax collection.

How Fiscal Deficit is not harmful-

Fiscal deficit occurs when govt. spends more in the fiscal year as compared to the revenues generated in the period, If all that Yojanas mentioned earlier turnout to be a success will create more employment, better health of the people, better infrastructure and will eventually leads to a prosperous economy, that will help to curb the Financial Deficit in the coming years.

Read more: http://www.bankersadda.com/2014/06/all-about-fiscal-deficit.html#ixzz35T6lDozf

NPA’s - Non Performing Assets

All about NPA’s

What are NPA’s (Non Performing Assets):

A mortgage in default would be considered non-performing, after a prolonged period of non-payment(90 days).

The lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were
pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency. 

Here is an example to help you understand what NPA’s are and how Banks counter it-

Mr. X decided to start a business for that he needed money (the fuel) , X had 25% of the money in his pocket, he decided to go through the route of Initial Public Offering(IPO) to generate 25% more by offering his company shares to public , the remaining 50% he borrowed from Lena bank by mortgaging his papa’s land.

Days passed and the company started to do badly then to worse and the loan installments lapsed month on month, Lena bank issued warning but X continued the bad practice for more than 90 days (condition for NPA) and the bank labeled X as defaulter and the loan as a Non Performing Asset.

Now what X will do?

 He could take his case against the bank to Debt recovery tribunal (DRT- A court for such cases).

What are Lena bank’s options?

In 2002, Govt. gave bank’s a lifeline called as SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of security interest Act)

With this Act Lena bank has the power to take possession of Mr.X’s property or can transfer this to some other ownership.

What bank will do with the acquired property?

Ø  Bank can use this for their own purpose like , opening a new branch on it, installing of ATM’s etc.

Ø  Bank can advertise in newspapers for the auction of the property acquired and could auction them on any pre decided day.

Ø  Bank can sell the property to ARC (Asset Reconstruction Company), these are registered companies under RBI, they buy such assets from banks and sell them at higher prices to gain profits.

NOTE- Total amount of NPA’s are around 4.4% of the total assets of banks in India and expected to increase to 4.7% till the end of FY’15