Union Budget Deficit is the difference between the total expenditure of the government and its total revenue receipts. It indicates the extent to which the government borrows funds to finance its expenses.
There are mainly three types of deficits in the Union Budget:
- Revenue Deficit: This refers to the excess of government’s revenue expenditure over its revenue receipts. Revenue expenditure includes the day-to-day expenses of the government, such as salaries, pensions, subsidies, etc., while revenue receipts include taxes, fees, and other sources of revenue. A revenue deficit means that the government is spending more on its day-to-day expenses than it is earning from taxes and other sources. It is usually financed by borrowing.
- Fiscal Deficit: This refers to the excess of government’s total expenditure over its total revenue receipts, including both revenue and capital receipts. It includes all government borrowings, which are used to finance the deficit. Fiscal deficit indicates the total borrowing requirement of the government, and it is usually expressed as a percentage of the GDP.
- Primary Deficit: This refers to the fiscal deficit minus interest payments on past borrowings. In other words, it is the borrowing requirement of the government to finance its current expenditure, excluding interest payments. It is considered a better indicator of the government’s fiscal position as it shows the extent to which the government is borrowing to finance its current expenses.
It is important for the government to keep its deficits under control as excessive deficits can lead to inflation and increase in interest rates, which can negatively impact the economy. The FRBM Act, which was introduced in 2003, aimed to reduce the fiscal deficit to a sustainable level and promote fiscal discipline.