TYPES OF BUDGET

DEFICIT
Manjaree Anand
PGT (Economics)
K.V.Maithon Dam
Ranchi Region

Introduction
Budgetary deficit is defined as the
excess of total estimated expenditure
over total estimated revenue i.e.
When the government spends more
than it collects, then it incurs a
budgetary deficit.

TYPES OF BUDGET DEFICIT

Revenue Deficit
2) Fiscal Deficit
3) Primary Deficit
1)

Revenue Deficit
Revenue Deficit refers to excess of
revenue expenditure over revenue
receipts during the given fiscal year.
Revenue Deficit = Revenue Expenditure
Revenue Receipts

It signifies that governments own

revenue is insufficient to meet the
expenditures on normal functioning of
government
departments
and
provisions for various services.

Implication Of Revenue Deficit

It indicates the inability of the government to meet its

regular and recurring expenditure in the proposed budget.
It implies that government is dissaving, i.e. government is
using up savings of other sectors of the economy to
finance its consumption expenditure.
It also implies that the government has to make up this
deficit from capital receipts, i.e. through borrowings or
disinvestment.
Use of capital receipts for meeting the extra consumption
expenditure leads to an inflationary situation
in the
economy. Higher borrowings increase the future burden in
terms of loan amount and interest payments.
A high revenue deficit gives a warning signal to the
government to either curtail its expenditure or increase its
revenue.

Measure to Reduce Revenue

Deficit
Reduce

Expenditure: Government
should take serious steps to reduce its
expenditure and avoid unproductive
or unnecessary expenditure.
Increase Revenue: Government
should increase its receipts from
various sources of tax and non-tax
revenue.

Fiscal Deficit
Fiscal Deficit refers to the excess of total expenditure
over total receipts (excluding borrowings) during the
given fiscal year.
Fiscal Deficit= Total Expenditure Total Receipts
excluding borrowings
Sources Of Financing Fiscal Deficit:
Government has to look out for different options to
finance the fiscal deficit. The main two sources are:
Borrowings: Fiscal Deficit can be met by borrowings
from the internal sources or external sources.
Deficit Financing: Government may borrow from RBI
against its securities to meet the fiscal deficit. RBI
issues new currency for this purpose. This process is
known as deficit financing.

Implications Of Fiscal
Deficit
The implications of fiscal deficit are as follows:
Debt Trap: Fiscal deficit indicates the total
borrowings requirements of the government.
Borrowings not only involve repayment of principal
amount, but also require payment of interest.

Inflation: Government mainly borrows from Reserve

Bank of India (RBI) to meet its fiscal deficit. RBI prints
new currency to meet the deficit requirements.
Foreign Dependence: Government also borrows from
rest of the world, which raises its dependence on other
countries.
Hampers the Future growth: Borrowings increase the
financial burden for future generations. It adversely
affects the future growth and development prospects of
the country.

Primary Deficit
Primary deficit refers to difference between fiscal
deficit of the current year and interest payments on
the previous borrowings.
Primary Deficit = Fiscal Deficit Interest Payments
Implications Of Primary Deficit:
It indicates, how much of the government
borrowings are going to meet expenses other than
the interest payments. The difference between fiscal
deficit and primary deficit shows the amount of
interest payments on the borrowings made in past.
So, a low or zero primary deficit indicates that
interest commitments have forced the government
to borrow

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