Fiscal deficit | Revenue deficit | Budget deficit | Differences explained with Examples


Fiscal deficit
The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. It is expressed as a percentage of GDP. Many economists think that if the deficit is financed by raising debt from the central bank it may lead to an inflationary scenario. Higher fiscal deficit is one of the reasons for the Indian economy to have relatively higher inflation. According to Keynesian Economics, deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

Revenue deficit
It is the difference between revenue receipts and revenue expenditure of a country. A mismatch in the expected revenue and expenditure can result in revenue deficit. Revenue deficit arises when the government's actual net receipts is lower than the projected receipts or the actual revenue expenditure is higher than the projected revenue expenditure. On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus. 

Budget deficit 
It is the difference between total receipts and total expenditure. If borrowings and other liabilities are added to budget deficit, we get Fiscal deficits

See the below example
For a Government, income comes in 2 forms 
1. Revenue Receipts (All taxes and other forms of revenue)
2. Capital Receipts (Loan recovered,Borrowed,Other liabilities etc)

And expenses are classified into 2 categories
1. Revenue Expenditure  (eg. The maintenance of the national highways, loan,interest etc repayed)
2. Capital Expenditure  (eg. The construction of the national highways)

1. Revenue Receipts 1,00,000                                                                        
2. Capital Receipts 1,00,000
                2.a Loan recovery 75,000
                2.b Loan borrowed 25,000
3. Total Receipts (1 +2) 2,00,000
4. Revenue Expenditure 1,50,000
5. Capital Expenditure 1,50,000
6. Total Expenditure (4+5) 3,00,000
7. Revenue Deficit (4-1) = 50,000
8. Budgetary Deficit (3-6) = 1,00,000
9. Fiscal Deficit [1+2(a) - 6 = 8 + 2 (b)] = 1,25,000

0 comments:

Post a Comment