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Which of the following is/are correctly matched? Revenue Deficit = Revenue expenditure – Revenue receipts Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts) 

Which of the following is/are correctly matched? Revenue Deficit = Revenue expenditure – Revenue receipts Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts)  Correct Answer Both 1 and 2

The correct answer is Both 1 and 2.

Key Points

  • A Budget is in deficit if the expenditure surpasses the revenue for a designated year.
  • There are various measures that capture government Deficit:
    • Revenue Deficit: It refers to the excess of the government’s revenue expenditure over revenue receipts.
      • Revenue Deficit = Revenue expenditure – Revenue receipts. Hence, Statement 1 is correct.
      • The revenue Deficit includes only such transactions that affect the current income and expenditure of the government.
      • When the government incurs a revenue deficit, it implies that the government is dissaving and is using up the savings of the other sectors of the economy to finance a part of its consumption expenditure.
    • Fiscal Deficit: It is the gap between the government’s expenditure requirements and its receipts.
      • This equals the money the government needs to borrow during the year.
      • A surplus arises if receipts are more than expenditure.
      • Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts). Hence, Statement 2 is correct.
      • It indicates the total borrowing requirements of the government from all sources.
      • From the financing side:
        • Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad
      • The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy.
    • Primary Deficit: Primary deficit equals fiscal deficit minus interest payments.
      • This indicates the gap between the government’s expenditure requirements and its receipts, not taking into account the expenditure incurred on interest payments on loans taken during the previous years.
      • Primary deficit = Fiscal deficit – Interest payments

Related Questions

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