Question

Distinguish between ‘Fiscal Deficit’ and ‘Revenue Deficit’.

Hint:

A controlled fiscal deficit ensures economic stability, while a high revenue deficit signals inefficiency in revenue generation and excessive expenditure.

Answer 1

Fiscal Deficit:
- It is the excess of total government expenditure over total receipts (excluding borrowings).
- Fiscal Deficit = Total Expenditure - Total Receipts (excluding borrowings).
- Indicates the total borrowing requirement of the government.
- A high fiscal deficit can lead to inflationary pressures and increased debt burden.
Revenue Deficit:
- It is the excess of total revenue expenditure over total revenue receipts.
- Revenue Deficit = Revenue Expenditure - Revenue Receipts.
- Shows the shortfall in government’s revenue needed to cover routine expenses.
- A high revenue deficit suggests unsustainable fiscal management, as borrowings are used for consumption rather than investment.
Conclusion: While both deficits indicate financial imbalances, fiscal deficit affects overall government borrowings, whereas revenue deficit reflects shortfalls in the government’s routine income compared to its expenditure.