There are 3 types of deficits: -
Revenue Deficit- The excess of government revenue expenditure over revenue receipts is called revenue deficit.
Revenue Deficit = Revenue Expenditure - Revenue Receipts.
Implications:
- It implies dissavings of government.
- It indicates the inability of the government to meet its regular and recurring expenditure.
- A high revenue deficit gives a warning signal to the government to either curtail its expenditure or increase its revenue.
- Revenue deficit is financed through capital receipts like borrowings and used to meet the consumption expenditure of the government. It leads to inflationary pressure in the economy.
Fiscal Deficit- The excess of total expenditure of the government over its total receipts excluding borrowing is called fiscal deficit.Fiscal Deficit = Total Expenditure - Total Receipts excluding borrowing
Implications-
- It indicates total borrowing requirements of the government. Borrowing create problem of not only payment of interest but also repayment of loans.If it continuously increases it means government takes more loans to repay the previous loans. As a result country is caught in debt trap.
- If government borrows from central bank, central bank issue new currency notes. It increases money supply and generates inflationary pressure in the economy.
- When government borrows from rest of the world, it raises the country’* dependence on other countries.
Primary Deficit- the excess of fiscal deficit over interest payments is called primary deficit.
Primary Deficit = Fiscal Deficit - Interest Payments
Implications:
- It indicates how much of the government borrowing are going to meet expenses other than interest payments.
- If it is zero, it indicates that government is only borrowing to repay the interest of previous loans.
