The Economic Times
12,180.3573.45
Stock Analysis, IPO, Mutual Funds, Bonds & More

Budget 2020: Types of deficits & how they are calculated

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.

ET Online|
Updated: Jan 09, 2020, 10.45 AM IST
0Comments
Agencies
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

Also Read

Budget 2020: What’s next for Private Equity and Venture Capital industry

What do mutual fund investors expect from Budget 2020?

Union Budget 2020: Why income-tax cut is a bad idea

Jewellers want cut in import duty of gold and in income tax in Budget 2020

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service