Posted in Finance, Accounting and Economics Terms, Total Reads: 373
Definition: Revenue Deficit
Revenue deficit occurs when the net amount received (total income – total expenses) by the government is lesser than the projected amount. Revenue deficit indicates the borrowing amount needed by the government. It shows that the income gained is insufficient for the government to carry normal functioning and provisioning. While calculating revenue deficit, interest payments are not included. If the interest payments are included in the calculation, the resulting amount is termed as Primary Deficit.
A revenue deficit does not actually mean loss of revenue; it simply indicates the excess of expenditure compared to receipts. In 2013, India’s revenue deficit stood at 4.4% of GDP. A revenue deficit implies that the government is funding the expenditure by consuming the funds from other sectors. The government can fund this deficit through capital borrowings or reducing investments in assets. If capital borrowings are used as a means to cover the revenue deficit, inflation tends to increase due to higher interest rates, thus making loans and other consumption costly.