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Meaning and significance of different concepts of deficit
Deficit financing has been widely used by the Government of India for acquiring
resources for economic development
...
Conceptually it is simply the difference between
aggregate expenditure and aggregate receipts
...
Deficit is measured in several ways, as a proportion of GDP, including primary, fiscal
and budget and revenue deficit
...
Revenue deficit refers to the excess of revenue expenditure over revenue receipts
...
In other words, there should be surplus on revenue account so
that this surplus should be used for investment in development projects or building assets which
yield return
...
However, in India, for the
past several years, there has been deficit on the revenue account
...
Therefore, borrowed funds from the
capital account have been used to meet a part of consumption expenditure of the government
...
Revenue deficit as percentage of gross domestic
product (GDP) had been quite high upto 2002-03
...
1
4
...
1
5
...
7
6
...
9
2
...
0
3
...
5
4
...
4
4
...
2
0
...
7
0
...
9
1
...
1
58
...
5
74
...
6
71
...
1
74
...
5
4
...
1
3
...
7
6
...
4
4
...
7
5
...
6
2
...
6
1
...
1
4
...
3
3
...
3
3
...
0
-0
...
4
-0
...
9
2
...
2
1
...
6
1
...
7
62
...
0
56
...
4
75
...
0
67
...
2
68
...
In 2003 Fiscal Responsibility Budget
Management Act (FRBMA) was passed according to which revenue deficit was to be
eliminated by 2008-09
...
4 in 2007-08 (RE)
...
Of this
capital receipts include market loans, borrowings from the RBI through treasury bills, loans
from foreign governments etc
...
Advances given to state governments, loans and advances to states and union territories, debt
servicing and repayment of public debt all these come under capital expenditure
...
When we take account of the budget as a whole including both current and capital
budget we arrive at the concept of the budget deficit
...
A budget deficit arises if there is a
difference between all the receipts and expenditures on current and capital account
...
However these concepts are restrictive and can indicate only the extent of monetary deficit
...
Accordingly there is another concept of deficit called Gross fiscal deficit (GFD)
...
e
...
It indicates
the total borrowing requirements of the government
...
Thus,
Fiscal Deficit = (Total Expenditure both on Revenue Account and Capital Account) {Revenue Receipts + Non-debt Capital Receipts)
Fiscal deficit is a more comprehensive measure of budgetary imbalances
...
Now, this fiscal deficit can be
financed in two ways
...
On this borrowing, the government has to pay rate of interest
annually
...
Secondly, the
government can finance the fiscal deficit by borrowing from the Reserve Bank of India which
issue new notes against government securities
...
It is in fact monetisation of fiscal deficit which, if undertaken to an excessive extent, leads to
inflation in the economy
...
In the above table, fiscal deficit of the Central Government of India was quite large
before 2003-04 which led to inflation or rise in prices in the economy on the one hand and
increase in public debt on the other
...
Primary Deficit
Primary deficit is another important concept of budgetary deficit
...
In other words, Primary deficit is the difference between gross fiscal deficit and the interest
payments
...
Thus, Primary Deficit = Fiscal Deficit - Interest Payments
Interest payments on public debt are transfer payments made by the government
...
The interest payments are very largely responsible
causing large fiscal deficit
...
In India, in recent years, interest payments on public debt has increased very much
...
Therefore, primary deficit is much lower than the fiscal deficit
...
5 per cent of GDP, whereas fiscal deficit was 6
...
The primary deficit came down to zero in 2003-04 which implied that all the proceeds
of the government borrowing were used to spend on making interest payment on the past public
debt
...
2)
...
As mentioned
above, interest payments are an item of liabilities in the revenue account of the budget
...
Monetisation of Fiscal Deficit
It may be noted that budget deficit can financed by borrowing from the Reserve Bank of India
by the central government against its own securities or treasury bills
...
In the old
terminology, it was known as deficit financing in India
...
It may be noted that in the earlier years separate data
regarding the budgetary deficit and therefore, the magnitude of deficit financing undertaken in
a year were provided by the government
...