Question

Give the relationship between the revenue deficit and the fiscal deficit.

Answer 1

Revenue deficit is the excess of revenue expenditure of the government over its revenue receipts. Fiscal deficit is the excess of total budget expenditure over total budget receipts excluding borrowings. Fiscal deficit points to borrowing requirements of the government. As fiscal deficit mounts, an increasingly larger part of GDP is siphoned off to pay the existing loans.

Accordingly, resources available for revenue expenditure are reduced. The growth process is hindered. The government is once again compelled to take loans adding to its fiscal deficit.

Thus, revenue deficit and fiscal deficit tend to push up each other.