Deficit Financing

Deficit Financing

Comparison among India, USA, China, Brazil & Italy with reference to its impact on their respective economies.

Definition

Revenue Expenditure

How it occurs:

Political factor

Social schemes

Uncontrolled plans

Poor governance

Impact on Economy

Slow economic

growth

Deficit recovering

Mintingmoney

BorrowingSelling Govt-bonds

Selling assets

CHINA

Budget 102 trillion dollars in 2011

119.8-238 Trillion dollars in 2012(estimation)

Renminbi.Yuan.

CHINA

Health

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Figures in billions

Revenue Expenditure

CHINA GDP-2012

The Gross Domestic Product (GDP) in China was worth 7298.10 billion US dollars in 2011, according to a report published by the World Bank. The GDP value of China is roughly equivalent to 11.77 percent of the world economy. 

CHINA Inflation rate-2012

The inflation rate in China was recorded at 2 percent in August of 2012. Historically, from 1994 until 2012, China Inflation Rate averaged 4.27 Percent reaching an all time high of 27.70 Percent in October of 1994 and a record low of -2.20 Percent in March of 1999.

CHINA Exports-2012

China exports were worth 177.97 Billion USD in August of 2012. Historically, from 1990 until 2012, China Exports averaged 49.76 Billion USD reaching an all time high of 181.10 Billion USD in May of 2012 and a record low of 2.84 Billion USD in January of 1990.

CHINA Unemployment-2012The urban unemployment rate in China was last reported at 4.1 percent in the second quarter of 2012. Historically, from 2002 until 2012, China Unemployment Rate averaged 4.15 Percent reaching an all time high of 4.30 Percent in December of 2003 and a record low of 3.90 Percent in September of 2002.

CHINA-Economic Strategy High budget coverage

Controlled government

policy

Tighten bank regulations

Max use of private firms

Balanced budget

INDIA

INDIADeficit Financing -2012

India's fiscal deficit during the 2011-12 fiscal year that ended in March was Rs 5,20,000 crore, or equivalent to 5.9% of India's gross domestic product (GDP).

Net tax receipts were Rs 6,42,000 crore and total expenditure was Rs 13,19,000 crore during the fiscal year.

INDIAGDP -2012

The Gross Domestic Product (GDP) in India was worth 1847.98 billion US dollars in 2011, according to a report published by the World Bank.

The GDP value of India is roughly equivalent to 2.98 percent of the world economy.

INDIA Inflation Rate-2012

The inflation rate in India was recorded at 6.87 percent in July of 2012.

From 1969 until 2012, India Inflation Rate averaged 8.02 Percent 

INDIA Exports-2012

India exports were worth 22443 Million USD in July of 2012.

From 1994 until 2012, India Exports averaged 8464.26 Million USD

INDIA Unemployment-2012

The unemployment rate in India was last reported at 3.8 percent in 2010/11 fiscal year. 

From 1983 until 2011, India Unemployment Rate averaged 7.57 Percent.

WORRIES

India's public debt stood at 68.05% of GDP which is highest among the emerging economies.

Inflation remains stubbornly high with 6.87% in July 2012, the highest among its BRICS (Brazil, Russia, India, China and South Africa) counterparts

Growth significantly slowed to 6.8% in 2008–09, but subsequently recovered to 7.4% in 2009–10, while the fiscal deficit rose from 5.9% to a high 6.5% during the same period.

Effect on Economy

Poor infrastructure Development

Lack of money supply in the economy

Low standard of living

Unemployment

Poverty

Instability in the economy  

How INDIA can overcome

The government should take steps to reduce expenditures to check slippage in government finances.

As per the survey, the provisional estimates of Centre's Resources indicate that the fiscal deficit will be

4.1 per cent in (2012-13), 3.5 per cent in (2013-14), 3 per cent in (2014-15, 2015-16 and 2016-17)

 

USA

USA Deficit Financing-2012Budget is deficit upon by $1 Trillion for the forth time in a row.

The gross federal debt increases each year by substantially more than the amount of the deficit each year. That is because a substantial amount of federal borrowing is not counted in the budget.

US Federal Deficit:

US Federal Debt:

Effect on GDP:

The CBO(Congressional Budget Office) predicting that increasing in this fiscal deficit would shrink GDP by 2.9% for the first half of next year, which would lead to a “significant recession” and a loss of two million jobs.

Debt to GDP ratio in one of the indicator of the health of an economy.

i.e., Debt/GDP = 16%/15% = 106%.

It shows the bad health of economy.

How US can overcome:

• Treasury must sell treasury bonds to raise the money to cover the deficit. It is also known as “public dept”, since these bonds are sold to public.

• Taxes will be raised.• benefits will be lowered.

Effect on Economy:

It affects the economy very badly. >higher interest rate.

>value of the dollar falls.

>repayment will be in cheaper dollar rate.

>higher interest ratio will again affect the budget as about 5% of the budget is allocated to debt interest payments.

ITALY

ITALY Deficit-2012

Italy reported a Government Budget deficit equal to -3.90 percent of the country‘s GDP.

ITALY GDP-2012

The Gross Domestic Product (GDP) of Italy is 2194.75 billion dollars.. 

ITALY Inflation Rate-2012

The inflation rate in Italy was recorded at 3.20 percent in August of 2012.. 

ITALY Exports-2012

Italy exports were worth 34.4 Billion EUR.

ITALY Unemployment-2012

The unemployment rate in Italy was last reported at 10.7 percent in July of 2012.. 

BRAZIL

BRAZILGDP-2012The Gross Domestic Product (GDP) in Brazil was worth 2476.65 billion US dollars in 2011.

The GDP value of Brazil is roughly equivalent to 3.99 percent of the world economy.

BRAZIL Inflation rate-2012The inflation rate in Brazil was recorded at 5.24 percent in August of 2012. Historically, from 1980 until 2012, Brazil Inflation Rate averaged 417.11 Percent reaching an all time high of 6821.31 Percent in April of 1990 and a record low of 1.65 Percent in December of 1998.

BRAZIL Exports-2012Brazil exports were worth 22.4 Billion USD in August of 2012. Historically, from 1997 until 2012, Brazil Exports averaged 10219.59 Million USD reaching an all time high of 26158.00 Million USD in August of 2011 and a record low of 2949.15 Million USD in January of 1999.

BRAZIL Unemployment-2012The unemployment rate in Brazil was last reported at 6.5 percent in July of 2012. Historically, from 2001 until 2012, Brazil Unemployment Rate averaged 9.22 Percent reaching an all time high of 13.10 Percent in August of 2003 and a record low of 4.70 Percent in December of 2011. 

Country Deficit Rate

GDP Inflation Rate

Exports Unemployment

CHINA -1.10% 2.30% 2% 177.97 Million USD

4.1%

INDIA -4.60% 5.50% 6.87% 22443 Million USD

3.8%

USA -8.70% 2.30% 1.70% 183 Billion USD

8.10%

ITALY -3.90% 2.60% 3.20% 36.8 Billion EUR

10.70%

BRAZIL 2.60% .50% 5.24% 22.4 Billion USD

5.30%

Comparison Chart

Reference:

1. http://www.tradingeconomics.com2. http://www.usgovernmentspending.com3. http://www.creativeintelligence.com4. http://www.economicsmjjsvr.com