What is Revenue Deficit? Explain its implications.

Revenue Deficit-It refers to the excess of total revenue expenditure o{ the government over its total receipts.

Revenue Deficit = Revenue Expenditure - Revenue Receipts.

Implications:

(i) It signifies that the governments current expenses are greater than current income. The bulk of these expenses is interest payment, wages for government employees and defence.

(ii) Government make up this deficit from capital receipts, i.e. through borrowing or dis-investment. It means revenue deficit either leads to an increase in liability or reduce assets.

(iii) Use of Capital receipts for meeting the extra consumption expenditure leads to an inflationary situation in the economy. Higher borrowing increase the future burden in term of loan amount and interest payments.