Fiscal deficit is a common trend of current socialist mixed economy governmental regimes all round the world.
Fiscal deficit is an economic phenomenon of collective state where the government’s expenditure exceeds the total revenues collected. Fiscal deficit gives the idea to the government about how much it need to borrow from the available sources to attain the budget requirements.
In India, the Reserve Bank of India performs the deficit financing. Government may also borrow money from other banks of the money market.
Reserve Bank of India does not produce wealth, but yes, it does produce currency by printing out notes out of thin air to meet the fiscal deficit requirements. When the RBI print out currency to fulfil the requirements of government, the currency reaches the market and that causes inflation and acute price rise.
The current acute price rise in India (especially in food sector) is evidently the result of the government stimulus it provided on behalf of borrowing from RBI that in turn simply print and dolled out currency in the market to increase the liquidity. Now those “stimulus” for the market is causing problems for the common man. That is, although government borrows money from RBI, which in turn, prints out money at the demand of politicians and government, the actual borrower who suffers the burden of debt is only the common man of India who has to face the yawning mouth of inflation every second day.
India’s fiscal deficit for the April to December 2009 was $66.9 billion.¹
So we can say that Indian government works on the principle of “Aamdani Aththanni Kharchaa Rupaiya” (expenditure exceeds income), and to maintain the expenditures, government burdens the common man with the always exceeding debt.
Anjalika Bardalai the senior economist and editor of Economist Intelligence Unit said in March 2009 that the fiscal deficit is probably the biggest downside risk that we see to the Indian economy.²
Reserve Bank Governor D. Subbarao also expresses his converns regarding the failure of regulated economy.

“I worry that in resolving this financial crisis perhaps we are sowing the seeds of the next crisis…next crisis could be a currency or a fiscal crisis,” Subbarao said.³

India is no new to the threat of extreme debt and bankruptcy. India faced the similar situation in 1990 when Indian government was forced to accept liberalization. Obviously, nobody would like to have a repeat of 1990 fiscal crisis. Yet, it is a possibility. To reduce that risk, Indian government strictly needs to control its expenditure and reduce the burden of welfare state, that is, government need to disinvest further.

The Fiscal Crisis of Euro Zone

The evidential repercussions of governmental expenditures and debt burden on the Euro zone countries are a matter of thought for financial world. The crisis began in Greece and is expanding to Spain and Portugal. It would be foolhardy to believe that the crisis will constrain itself to the weaker economies of Europe alone.
In 2008, when Pakistan faced bankruptcy due to its fiscal debt, economist warned that Ukraine, Kazakhstan, and Argentina could also slide into a downward spiral towards bankruptcy, and to that list, now we have added Greece, Spain and Portugal. Ex-IMF chief economist Simon Johnson openly stated that the UK should also be considered in the category of nations at the verge of bankruptcy because of huge governmental fiscal deficits.⁴ There is no reason to doubt the ex-Chief economist of IMF because of the fact that the euro-zone governments are predominantly welfare states with extreme high fiscal deficits year by year. The budget situation in all European countries is extremely weak with no hope for a manageable budget any soon. The government obviously provides huge welfare benefits for the citizens in shapes of free-education, Universal Health Care systems and other socialistic patterns that obviously increase huge collective wastage of resources produced by citizens.
Simon Jones said, “They seem to show no awareness at all that much of Europe is facing a serious crisis and it’s not limited to Spain, Greece and Portugal, it’s also going to include Ireland. I think Italy is also very much in the line of fire. There’s a very serious crisis inside the Euro zone.”
The only way for these economies to avoid the situation of bankruptcy is to reduce their fiscal deficit to minimal and that is possible only by reducing the governmental expenditures, i.e. by restricting government to very limited or no power to interfere with market.
During the Global Meltdown, when the government of major countries were announcing “economic stimulus” for the market, socialists were claiming how the Market is unable to be free and needs governmental help. I mentioned how the Economical Stimulus are not a Cure it is Venom⁵ . The current situation throughout the world is evidential proof for that opinion.
The world is still to learn a simple fact that there is no such thing as a Keynesian free lunch, that government does not produce anything, and whenever it robs individuals of their wealth for the purpose of welfare of society or nation, such crisis evolves to brutalize every individual.

US, the most powerful Borrower

Larry Summer once asked in US Congress “How long can the world’s biggest borrower remain the world’s biggest power?”⁶
The question signified its strength when Moody’s Investors Service cautioned that the triple A credit rating of the US could not be taken for granted.
For its grandeur position as a citizen friendly government providing them free gifts, entitlements, subsidies, stimulus, educational helps, Medicare, Medicaid and other social service programs, US government keeps borrowing money from Fed by issuing T-bonds. President Obama has also dreams of Universal Health-care and Free Education for US citizens. Further government need funds to keep its worthless and terrorizing schemes of War on Terror. The unaware citizens feel good and strong at such governmental gestures and politicians keep on playing with the future of citizens, burdening them with further huge debts, announcing further social programs like Universal Health care and free education. The current national debt on US is around 13 trillion. President Barrack Obama signed ceiling of $14.3 trillion public debt on February 12, 2010. The yearly Public debt chart shows that US debt never decreased and it will always keep on increasing.⁷
Renowned economist, editor of Financial Times and author of “The Ascent of Money: A Financial History of World” Professor Ferguson stressed that

The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.⁸

Such huge national debt increases the fears of default and currency depreciation, and an immediate hyperinflation that push up real interest rates. The higher interest rates drag down the growth further while the private sector also suffers the burden of debt. In addition, to pay back and avoid bankruptcy, government tries to increase revenues by confiscating private property, increasing taxes that in turn dilapidate the private sector completely causing extreme unemployment, poverty, food crisis, riots and complete chaos.
According to International Monetary Fund, the developed countries need to manage their fiscal deficit within a decade in order to avoid defaults. Worst condition of nations under debt is of Japan and UK, than Ireland, Spain, Greece and at sixth place, is US.
Conclusion: The economic stimulus proved out to be venom; the western countries are now in a deep fiscal crisis while India and China are facing the huge inflation problems. The collective welfare statist ideology is wrong at its base and the world need to understand that the only cure for the Market is Freedom from any sort of Governmental interference.
With such huge debt burdens, the governments now need to heed the libertarian urge for free market. Governments need to restrict their welfare programs. There should be no government interference in market. Governments now need to work for reduction of expenditures and reduction of debts.

1. India Apr-Dec fiscal deficit at $66.9 bln – govt, Reuter India [↩]
2. ‘High fiscal deficit, biggest risk to India’ Anjalika Bardalai, senior editor/economist, Economist Intelligence Unit. [↩]
3. Next crisis could be related to currency or fiscal: RBI, D Subbarao, Governor of RBI [↩]
4. The UK should be seen in the same category of countries as Greece and Spain, who are facing severe debt problems, a leading economist has said, Ex-Chief Economist of IFA [↩]
5. Economic Stimulus is not Cure, it is Venom, RFL [↩]
6. Larry Summers’ killing Question on US Fiscal Deficit, NYTimes [↩]
7. United States public debt, Wikipedia [↩]
8. Professor Ferguson,
   A Greek crisis is coming to America, Financial Times [↩]