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  • At a general level, a budgetary deficit is simply the excess of public expenditure over public revenue. However, there are several variations of deficits depending upon the goals for which the deficit is being analysed.

Deficit on Revenue Account or Revenue Deficit (RD)

  • The excess of expenditure on revenue account over receipts on revenue account measures Revenue Deficit: i.e. D. = Expenditure on Revenue Account = Receipt on Revenue Account. Receipts on Revenue account include both tax and non-tax revenue as well as grants.
  • Tax revenue is net of States’ share as also net of Assignment of UT Taxes to Local Bodies. Non-tax revenue includes interest receipts, dividends coo profits, and non-tax revenue receipts of UTs Grant include grants from abroad also.
  • Expenditure on revenue account includes both Plan and Non Plan components. The Plan components include Central Plan and Central Assistance for State and UT Plans.
  • Non-Plan expenditure includes interest payments; defence expenditure on revenue account, subsidies, debt relief to farmers, postal deficit, police, pensions, other general services, social services, economic services, non-Plan revenue grants to States and UTs, expenditure of UTs without legislature, and grants to foreign governments, in 2013-14, there has been a significant reduction in planned expenditure over the budgeted levels.

Deficit on Capital Account

  • The excess of capital expenditure over capital receipts measures the Capital Deficit (CD). Plan capital expenditure include those on Central Plan and Assistance for State and UT plans.
  • Non-Plan capital expenditures include defence expenditure on capital account; other non-plan capital outlay; loans to public enterprises, states and UT Governments, foreign government and other; and non-Plan capital expenditure of UTs without legislature.                                                WHAT IS BUDGETARY DEFICITS ?
  • Receipts on account of sale of 91-day ad hoc treasury bills and drawing down of cash balances do not form a part of capital receipts. However, net receipts on account of sale of remaining varieties of treasury bills and sales proceeds of Government assets are included in capital receipts.

Budgetary Deficit (BD)

  • It is the sum total of Revenue Deficit and capital Deficit i.e. it is the excess of Total expenditure over Total Revenue. Put another way, Budgetary Deficit is that portion of government expenditure which is financed through the sale of 91 day ad hoc treasury bills and drawing down on cash balances.

Fiscal deficit (FD)

  • Gross Fiscal Deficit, commonly called Fiscal Deficit measures that portion of Government expenditure which is financed by borrowings (i.e. all borrowings including those through 91-day ad hoc treasury bills) and drawing down on cash balances. The term “borrowings” in above definition are net of repayments. FD = [Total Expenditure — (Revenue Receipts + Recoveries – Sales of Public Assets)]. Alternatively, FD can also be represented as the sum of
  • borrowing, other than through 91-days ad hoc treasury bills
  • other capital receipts; and
  • Budgetary Deficit.

In this manner, FD is often interpreted as an addition to the liabilities of the government.

Primary Deficit (PD)

  • Primary Deficit is defined as FD less net interest payment by the Government. Therefore, PD = FD — [Interest Payment — Interest Receipts]. The logic behind excluding net interest payments is that these payments reflect a consequence of past actions of the government, namely, loans taken and given earlier. Thus, excluding them gives better picture of current financial affairs.                                                                                                                WHAT IS BUDGETARY DEFICITS ?

Monetised Deficit (MD)

  • Monetised Deficit is defined as increase in net RBI credit to Central Government. Thus, Monetised Deficit is only that part of FD that is met by borrowings from The rationale for this measure of deficit flow from the inflationary impact which a budgetary deficit exerts on the economy.

Effective Revenue Deficit

  • It is defined as the Revenue Deficit minus that part of Central government’s expenditure on Revenue Account that is used for creation of capital assets. Such expenditure is generally made by the states from the grants made available by the Central Government.

Fiscal Management

  • At a general level, fiscal management refers to the management of both the revenue as well as expenditure sides of the budget and that of public debt so that the budgetary deficits don’t expand to levels that destroy the sound macro­economic management.
  • For all countries in general and the developing countries in particular, it is extremely difficult to balance the budget i.e. earn enough revenue to finance ail its expenditures. This is because the developing countries face challenges on both revenues and the expenditure fronts.
  • At expenditure front, these countries are bound to invest more in human as well as physical capital like health, education, basic infrastructure which needs a lot of expenditure but can given reasonable return only in long run. At revenue front, a large part of workforce and self-employed persons are associated with the unorganized sector.
  • it is difficult for the government to tax this sector and thus the base of direct tax remains narrow. But at the same time it deficit keeps on increasing continuously, they may hurt the basic macroeconomic foundations like stable inflation.                                                                  WHAT IS BUDGETARY DEFICITS ?
  • To the extent that higher deficits are financed by taking credit from RBI, the level of money supply increases in the economy, thus giving rise to inflationary expectations.


Indian Economy

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