Question

Difference between fiscal deficit and budget deficit

Answer 1

Govt collects receipts in form of taxes and interests and spends the money in development works. if the expenditure exceeds the receipts then deficit occurs.

to know the difference between fiscal deficit and budget deficit , one has to know 4 terms

revenue receipts
revenue expenditure
capital receipts
capital expenditure
revenue receipts consists of receipts from all type taxes and interest receipts from state govt, dividends payment from psus and other non tax receipts.

revenue expenditure is normally met out from revenue receipts and consists of spending in general administrative services,social and community services,economic services,interest payment to the borrowing from market and financial institute etc.

capital receipts consist of net recoveries of loans and advance payment to state govts,net market borrowing and other liabilities ,net small saving schemes etc

capital expenditure consists of expenditure on capital items,i.e loan to state govt for financing projects,capital expenditure on defence etc.

total receipt consists of revenue and capital receipts where as total expenditure consists of revenue expenditure and capital expenditure.

now budget deficit=total receipts-total expenditure

and fiscal deficit=total receipts excluding market borrowing and other liabilities -total expenditure

it can also be expressed as the Sum of Budget deficit plus Borrowings and other Liabilities.

Example showing Calculation of Budget Deficit and Fiscal Deficit.
(value In Crores) and the figures are assumed
1. Revenue Receipts =3,00,000
2. Capital Receipts =1,60, 000
a) Loan recoveries + other receipts =10,000
b) Borrowings & Other liabilities =1,50,000
3. Total Receipts (1 +2) = 4,60,000
4. Revenue Expenditure =3,50,000
5. Capital Expenditure =1,10,000
6. Total Expenditure (4+5) =4,60,000
7. Budget Deficit (3-6) =NIL
8. Fiscal Deficit [1+2(a) - 6 =3- 2(b)-6=7 + 2 (b)]= 1,50,000

Hence the summary is if govt expends more than it collects then deficit occurs and its known as fiscal deficit and to finance the deficit it borrows money . If it borrows the amount equals to fiscal deficit ,then the budget deficit becomes zero and if it borrows less than the fiscal deficit amount,then budget deficit occurs.

There is also another deficit known as primary deficit and it does not have any policy significance.

primary deficit=fiscal deficit-interest payment

interst payment is a part of revenue expenditure. in the above example suppose out of total revenue expenditure 3,50,000 , interest payment is 1,20,000.

then primary deficit is=8-interest payment part of 4=1,50,000-1,20,00