Deficit financing is defined as financing the budgetary deficit through loans from RBI and creation of new money.
Four concepts of a deficit are used and are calculated as shown below:
1. Fiscal Deficit: The excess of government’* expenditure over its revenue receipts and non-debt capital receipts is the fiscal deficit.
It is calculated as:
Fiscal deficit = (Revenue receipts + Nondebt Capital Receipts) – Total Expenditure
2. Revenue Deficit: It is excess of total revenue expenditure of the government over its total revenue receipts.
It is calculated as:
Revenue Deficit = Revenue receipt – Revenue Expenditure
3. Primary deficit: It is defined as the fiscal deficit of current year minus interest payments on previous borrowings.
It is calculated as:
Budget Deficit = Total Revenue – Total Expenditure.
