Fiscal Deficit
Fiscal deficit represents the total borrowing requirement of the government in a financial year.
It arises when total expenditure exceeds total non-borrowed receipts.
It indicates:
- The extent to which the government depends on borrowings
- Overall fiscal imbalance in the budget
- Pressure on public debt and interest payments
Fiscal deficit is financed through:
- Market borrowings
- Small savings
- External loans
Revenue Deficit
Revenue deficit occurs when revenue expenditure exceeds revenue receipts.
It reflects:
- Whether the government’s regular income is sufficient to meet its routine expenses
- The degree to which borrowings are being used for consumption rather than asset creation
A revenue deficit implies:
- Borrowed funds are partly used for salaries, subsidies, and interest payments
- Reduced fiscal space for capital investment
Primary Deficit
Primary deficit is the fiscal deficit excluding interest payments.
It shows:
- The government’s current fiscal stance, independent of past debt obligations
- Whether present policies are generating additional debt beyond inherited liabilities
Primary deficit helps assess:
- Effectiveness of fiscal management
- Sustainability of government finances over time
Effective Revenue Deficit
Effective revenue deficit is the revenue deficit adjusted for grants given to states for capital asset creation.
It represents:
- The portion of revenue deficit that is truly consumptive
- Revenue spending that does not contribute to asset formation, even indirectly
This measure provides:
- A clearer picture of the quality of revenue expenditure
- Better assessment of how much borrowing supports productive outcomes
