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    Budget 2020: Types of deficits & how they are calculated

    Synopsis

    A revenue deficit indicates that the government doesn't have sufficient revenue for the normal functioning of the government departments. In other words when the government starts spending more than it earns it results in Revenue Deficit.

    Agencies
    Alternatively, measures to increase the revenue are also taken in forms of broadening tax base restructuring and sale of shares in public sector units etc.
    Revenue Deficit:
    Revenue Deficit is the excess of its total revenue expenditure to its total revenue receipts. Revenue Deficit is only related to revenue expenditure and revenue receipts of the government.

    The difference between total revenue expenditure to the total revenue receipts is Revenue Deficit.

    What does it mean?
    A revenue deficit indicates that the government doesn't have sufficient revenue for the normal functioning of the government departments. In other words when the government starts spending more than it earns it results in Revenue Deficit. Revenue Deficit forces the government to disinvest or cover the shortage by borrowing.

    Remedial measures:
    In the case of Revenue Deficit government usually tries to curtail their expenses or increase its tax and non-tax receipts. This can be done by introducing new taxes or increasing the tax on people in higher-earning slabs.

    Fiscal Deficit:
    The excess of total expenditure over total receipts excluding borrowings is called Fiscal Deficit. In other words, the Fiscal Deficit gives the amount needed by the government to meet its expenses. Thus a large Fiscal Deficit means a large amount of borrowings.

    What does it mean?
    Simply put a Fiscal Deficit is a measure of how much the government needs to borrow from the market to meet its expenditure when its resources are inadequate.

    Remedial measures:
    Various measures might be taken to reduce Fiscal Deficit, some of them can be reducing public expenditure in the form of subsidies, reduction in expenditure on bonus, LTC, Leaves encashment etc.

    Alternatively, measures to increase the revenue are also taken in forms of broadening tax base restructuring and sale of shares in public sector units etc.

    Primary Deficit:
    Primary Deficit is Fiscal Deficit of the current year minus interest payments on previous borrowings. While Fiscal Deficit represents the government's total borrowing including interest payments, Primary Deficit shows the amount of borrowing excluding interest payments.

    What does it mean?
    Primary Deficit shows the amount of government borrowings specifically to meet the expenses by removing the interest payments. Therefore, a zero Primary Deficit means the need for borrowing to meet interest payments.

    Remedial measures:
    A higher Primary Deficit reflects the amount of new borrowings in the current year. Since this is the amount on top of already existing borrowings (Fiscal Deficit) similar measures can be taken to reduce the amount of borrowings.

    Given below are actual budget numbers from FY17 to help you understand how various deficit numbers are calculated.

    Budget 2016-2017 ( Figures in Rs crore)

    1. Revenue Receipts 1374203
    2. Tax Revenue (Net to Centre) 1101372
    3. Non-Tax Revenue 272831
    4. Capital Receipts 600991
    5. Recovery of Loans 17630
    6. Other Receipts 47743
    7. Borrowings and Other Liabilitites 535618
    8. Total Receipts (1+4) 1975194
    9. Total Expenditure (10+13) 1975194
    10. On Revenue Account of which 1690584
    11. Interest Payments 480714
    12. Grants in Aid for creation of capital assets 165733
    13. On Capital Account 284610
    14. Revenue Deficit (10-1) 316381
    15. Fiscal Deficit [9-(1+5+6)] 535618
    16. Primary Deficit (15-11) 54904

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