Measurement of Government Deficit - NCERT Class 12 Economics

What is Budget Deficit?

BUDGET DEFICIT = BUDGETED EXPENDITURES - BUDGETED RECEIPTS

Budget deficit is defined as the excess of total budgeted (estimated) expenditures over total budgeted (estimated) receipts of the government during a fiscal (financial) year. It occurs when total budgeted expenditures are more than total budgeted receipts.




Practically budget deficit never arises as planned expenditures can't exceed planned receipts. If there is any deficiency in the budget, then it will be fulfilled by loans and borrowings. So ultimately the budget becomes balanced and such loans & borrowings represent fiscal deficit.

So in the end, the equation is

Budgeted Expenses = Budgeted Receipts + Fiscal Deficit.



Fiscal deficit: Fiscal deficit is defined as the excess of total budgeted expenditures over total budgeted receipts (excluding loans and borrowings) during a fiscal year. Thus, the fiscal deficit is always equal to the loans and borrowing. This is because these loans & borrowings fill up the gap between budgeted expenditures and budgeted receipts

FISCAL DEFICIT = BUDGETED EXPENDITURES BUDGETED RECEIPTS (Other than loans and borrowings)

OR

FISCAL DEFICIT = LOANS AND BORROWINGS

Revenue deficit: Revenue deficit is defined as the excess of budgeted revenue expenditures over budgeted revenue receipts during a fiscal year. It occurs when budgeted revenue expenditure exceeds budgeted revenue receipts.

Revenue receipts are receipts which neither lead to an increase in liability nor reduction of assets of the government. For example, Income Tax. Income tax paid by the citizens is revenue receipt for the government. Income Tax amount is not supposed to be paid back by the government to the citizens. The receipt of income tax by the government does not create any liability for it. Hence, it is a revenue receipt.

Revenue expenditures are expenditures which neither lead to an increase in assets of the government nor lead to a reduction of liabilities of the government. For example, salaries paid by the government to government employees. This expenditure neither creates any asset nor reduces any liability of the government.




REVENUE DEFICIT = BUDGETED REVENUE EXPENDITURE - BUDGETED REVENUE RECEIPTS.

Revenue deficit does not take into account capital receipts and capital expenditures.

Primary Deficit - Primary deficit refers to fiscal deficit other than interest payment. It shows a deficiency in the budget which is created due to the current financial planning of the government.

PRIMARY DEFICIT = FISCAL DEFICIT - INTEREST PAYMENT