Fiscal Deficit: UPSC Daily Important Topic | 13 December 2021

Fiscal Deficit

•A situation of fiscal deficit is said to happen when the government’s total expenditures exceed the revenue that it generates excluding the money from borrowings.

•The deficit is different from debt. Debt is actually an accumulation of yearly deficits.

•The fiscal deficit is defined as an excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year. It is the amount of borrowing the government has to resort to meet its expenses.

•A large deficit means a large amount of borrowing. The fiscal deficit is a measure of how much the government needs to borrow from the market to meet its expenditure when its resources are inadequate.

•Fiscal deficit = Total expenditure – Total receipts excluding borrowings = Borrowing

•The fiscal deficit is, in fact, equal to borrowings. Thus, the fiscal deficit is an indicator of the borrowing requirement of the government.

✓The situation of the fiscal deficit without Revenue deficit. It is possible in the following situations:

•When the revenue budget is balanced but the capital budget shows a deficit or

•When the revenue budget is in surplus but a deficit in the capital budget is greater than the surplus of the revenue budget.