While a lower fiscal deficit is seen as a positive sign of fiscal discipline and a healthy economy.
Positive Aspects of Fiscal Deficit:
Increased Government Spending:Fiscal deficit enables the government to increase spending on public services, infrastructure, and other important areas that can stimulate economic growth.
Finances Public Investments: The government can finance long-term investments, such as infrastructure projects, through fiscal deficit.
Job Creation: Increased government spending can lead to job creation, which can help reduce unemployment and increase the standard of living.
Negative Aspects of Fiscal Deficit:
Increased Debt Burden: A persistent high fiscal deficit leads to an increase in government debt, which puts pressure on future generations to repay the debt.
Inflationary Pressure: Large fiscal deficits can lead to an increase in money supply and higher inflation, which reduces the purchasing power of the general public.
Crowding out of Private Investment: The government may have to borrow heavily to finance the fiscal deficit, which can lead to a rise in interest rates, and make it difficult for the private sector to access credit, thus crowding out private investment.