Union Budget: Types of deficits and how they are calculated

Revenue Deficit:
Revenue Deficit refers to the excess of total revenue expenditure over total revenue receipts of the government. It specifically pertains to the government's revenue-related expenditures and receipts.

Simply put, Revenue Deficit signifies that the government's revenue is insufficient to cover its regular operational expenses. When government expenditures surpass its earnings, a Revenue Deficit occurs, compelling the government to either sell assets or borrow to cover the shortfall.


Meaning:
A Revenue Deficit indicates that the government is spending more than it earns from its regular operations.

Remedial Measures:
To address Revenue Deficit, the government typically aims to reduce expenses or increase tax and non-tax revenues. This might involve introducing new taxes or raising taxes for higher-income brackets.

Fiscal Deficit:
Fiscal Deficit refers to the excess of total government expenditure over total receipts excluding borrowings. In essence, it represents the amount the government needs to borrow to meet its expenses, indicating a significant borrowing requirement.

Meaning:
Fiscal Deficit measures how much the government must borrow from the market to cover its expenses when its own resources are inadequate.

Remedial Measures:
To reduce Fiscal Deficit, the government may consider cutting public expenditures such as subsidies, bonuses, and leave encashment. Alternatively, it may aim to increase revenues by broadening the tax base or selling shares in public sector enterprises.

Primary Deficit:
Primary Deficit is the Fiscal Deficit of the current year minus interest payments on previous borrowings. It shows the extent of government borrowing excluding interest payments.

Meaning:
Primary Deficit specifically highlights the government's borrowing needs after subtracting interest payments. A zero Primary Deficit would mean that all borrowing is solely to meet interest payments.

Remedial Measures:
A higher Primary Deficit indicates increased new borrowings for the year. Measures to reduce Primary Deficit may mirror those for reducing Fiscal Deficit, focusing on minimizing additional borrowings on top of existing debts.

These concepts are crucial in understanding and managing a government's financial health and fiscal policies.

Given below are actual budget numbers from FY17 to help you understand how various deficit numbers are calculated.

Budget 2016-2017 (Figures in Rs crore)

1. Revenue Receipts	1374203
2. Tax Revenue (Net to Centre)	1101372
3. Non-Tax Revenue	272831
4. Capital Receipts	600991
5. Recovery of Loans	17630
6. Other Receipts	47743
7. Borrowings and Other Liabilitites	535618
8. Total Receipts (1+4)	1975194
9. Total Expenditure (10+13)	1975194
10. On Revenue Account of which	1690584
11. Interest Payments	480714
12. Grants in Aid for creation of capital assets	165733
13. On Capital Account	284610
14. Revenue Deficit (10-1)	316381
15. Fiscal Deficit [9-(1+5+6)]	535618
16. Primary Deficit (15-11)	54904