Question

Explain the meaning of the following.
(a) Revenue deficit
(b) Fiscal deficit
(c) Primary deficit.

Answer 1

(a) The revenue deficit refers to the excess of government’s revenue expenditure over revenue receipts.

Revenue deficit = Revenue expenditure – Revenue receipts

The revenue deficit includes only such transactions that affect the current income and expenditure of the government. When the government incurs a revenue deficit, it implies that the government is dissaving and is using up the savings of the other sectors of the economy to finance a part of its consumption expenditure.

(b) Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing

Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt

creating capital receipts)

(c) To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate the primary deficit. It is simply the fiscal deficit minus the interest payments

Gross primary deficit = Gross fiscal deficit – net interest liabilities

Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending.