Q. 5

Define Fiscal Deficit and revenue deficit.

Answer :

a. Revenue deficit:

● Revenue deficit is the excess of total revenue expenditure of the government over its total revenue receipt.


● Revenue deficit = expenditure minus total revenue receipt.


● It indicates the dissaving of the government because the government has to make up for the uncovered gap.


● It is done by using the capital receipts either by borrowing or through selling its assets.


● The government usually uses its capital receipt to meet the consumption expenditure which leads to an inflationary situation in the economy.


● The two measures to reduce revenue deficit are:


i. The government should reduce all its unproductive expenditure.


ii. The government should increase its revenue from various tax and nontax revenue sources.


b. Fiscal deficit:


● The fiscal deficit is the excess of total expenditure over total receipt of the government excluding borrowing.


● It indicates the capacity of the government to borrow in accordance with what it produces.


● It is also an indicator of the extent of the government's dependence on borrowing to meet its expenditure requirements.


● This increases the liability of the government to repay the loan along with the interest which leads to an increase in the revenue deficit.


● The government borrows either from the central bank or from the governments of the other country.


● This leads to an increased dependence on others.


● Borrowing from foreign countries leads to economic and political interference which increases the economic slavery of the government.


● The government not only has to pay the loans but they also have to pay the amount in interest which increases the financial burden.


● The payment of the interest increases the revenue expenditure of the government which leads to an increase in the revenue deficit. This vicious circle is called a debt trap.


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