Fiscal Deficit
- A fiscal deficit is the difference between the government’s total expenditure and its total revenue (excluding borrowings).
- It is an indicator of the extent to which the government must borrow to finance its operations and is expressed as a percentage of the country’s Gross Domestic Product (GDP).
- A high fiscal deficit can lead to inflation, devaluation of the currency, and an increase in the debt burden.
- Fiscal deficit comprises of two parts-
- Revenue Deficit: It refers to the excess of the government’s revenue expenditure over revenue receipts. (Revenue Deficit = Revenue expenditure – Revenue receipts)
- Capital Deficit: Capital account deficit occurs when outflows exceed the inflow in the capital account of a country in a given year. (Capital Deficit = Capital expenditure – Capital receipts)
Other Types of Deficit
- 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).
- Effective Revenue Deficit – It is the difference between revenue deficit and grants for the creation of capital assets.
- Budget Deficit – A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.
- Zero Primary Deficit – The primary deficit is zero, the fiscal deficit becomes equal to the interest payment. This means that the government has resorted to borrowings just to pay off the interest payments. Further, nothing is added to the existing loan.
- Fiscal Slippage’ – Fiscal slippage in simple terms is any deviation in expenditure from the expected.
- Monetized deficit – The Monetised Deficit is the extent to which the RBI helps the central government in its borrowing programme. In other words, a monetised deficit means the increase in the net RBI credit to the central government, such that the monetary needs of the government could be met easily.