Q. 164.0( 1 Vote )

Explain the

Answer :

Budget deficit refers to the total budget expenditure (both revenue expenditure and capital expenditure) exceeding the total budget receipt (both revenue receipt and capital receipt).

Budget deficit = total expenditure minus total receipt.

There are three different types of budget deficits:

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 dis saving 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 un productive 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 increase in the revenue deficit. This vicious circle is called a debt trap.

c. Primary deficit:

● The primary deficit is the fiscal deficit minus interest payment.

● It is an indicator of the borrowing requirement of the government to meet the expenditure other than the interest payment on earlier loans.

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