Question

What are various measures of budgetary deficit used in India? Explain them briefly along with their implications.

What are the primary deficit implications on the economy?

Answer 1

The main measures of budgetary deficit in India are:

1. Revenue Deficit: It is defined as the excess of revenue expenditure over revenue received. 
   Revenue Deficit = Revenue Expenditure − Revenue Receipts
   
   • Implication: 
     • This indicates that the government does not earn enough to cover its daily expenses.
     • It may result in borrowing for present spending, which is financially harmful.
     • Reducing the revenue deficit is critical to maintaining fiscal discipline.
2. Fiscal Deficit: It refers to the government's entire borrowing requirements. It calculates the difference between total spending (revenue and capital) and total income (excluding borrowings).
   Fiscal Deficit = Total Expenditure − (Revenue Receipts + Non-debt Capital Receipts)
   • Implication:
     • This reflects the government's overall borrowing requirement.
     • A large budget deficit may cause inflation, crowding out of private investment, and an increase in governmental debt.
     • Credit rating agencies and overseas investors pay close attention to this essential signal.
3. Primary Deficit: It equals the budget deficit less the interest payments on previous borrowings.
   Primary Deficit = Fiscal Deficit − Interest Payments
   
   • Implication: 
     • Displays the deficit, ignoring the interest load.
     • If the primary deficit is zero, the government's current expenses (excluding interest) are within income, indicating improved management.
     • Helps determine how much of the deficit is due to historical debt.