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Question

Which among the following statements are correct about various budgetary deficits in India?

  1. Fiscal deficit is the difference between government’s total expenditure and its total receipts including borrowings.
  2. The primary deficit is the total fiscal deficit excluding total interest liabilities.
  3. The fiscal deficit indicates the total borrowing requirement of the government from all sources.
  4. In recent past it is revenue deficit that stands very high over fiscal deficit.

Codes :


  1. 1, 2 and 3 only

  2. 1, 3 and 4 only

  3. 2 and 3 only

  4. All of these


Solution

The correct option is C

2 and 3 only


Borrowings are excluded i.e. fiscal deficit is difference between govt’s total expenditure and total receipts excluding borrowings. Thus a statement 1 is incorrect. Revenue deficit always remain below fiscal deficit as Revenue deficit is a part of fiscal deficit. Thus statement 4 is also incorrect. Statement 2 and 3 are correct.

Types of Budgetary Deficit The different types of budgetary deficit are explained in following points :-

1. Revenue Deficit Revenue Deficit takes place when the revenue expenditure is more than revenue receipts. The revenue receipts come from direct & indirect taxes and also by way of non-tax revenue. The revenue expenditure takes place on account of administrative expenses, interest payment, defence expenditure & subsidies.

2. Budgetary Deficit

Budgetary Deficit is the difference between all receipts and expenditure of the government, both revenue and Capital. This difference is met by the net addition of the treasury bills issued by the RBI and drawing down of cash balances kept with the RBI.

The concept of budgetary deficit has lost its significance after the presentation of the 1997-98 Budget. In this budget, the practice of ad hoc treasury bills as source of finance for government was discontinued. Ad hoc treasury bills are issued by the government and held only by the RBI. They carry a low rate of interest and fund monetized deficit.

3. Fiscal Deficit Fiscal Deficit is a difference between total expenditure (both revenue and capital) and revenue receipts plus certain non-debt capital receipts like recovery of loans, proceeds from disinvestment.

In other words, fiscal deficit is equal to budgetary deficit plus government’s market borrowings and liabilities. This concept fully reflects the indebtedness of the government and throws light on the extent to which the government has gone beyond its means and the ways in which it has done so.

4. Primary Deficit The fiscal deficit may be decomposed into primary deficit and interest payment. The primary deficit is obtained by deducting interest payments from the fiscal deficit. Thus, primary deficit is equal to fiscal deficit less interest payments

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