Government Budget: Types and Measures of Deficit

The Government Budget is an annual financial statement showing the government's estimated receipts and estimated expenditure for the coming financial year. Its main objectives are: reallocating resources between the private and public sectors in line with national priorities; redistributing income and wealth (through progressive taxation and welfare spending) to reduce inequality; maintaining economic stability by moderating the ups and downs of the business cycle; managing and regulating public sector enterprises; and generating employment through public spending on infrastructure and welfare programmes.

Depending on the relationship between total receipts and total expenditure, a budget can be classified as:

• Balanced Budget — estimated receipts exactly equal estimated expenditure.
• Surplus Budget — estimated receipts exceed estimated expenditure.
• Deficit Budget — estimated expenditure exceeds estimated receipts (this is the typical case for most modern governments, including India's, in most years).

Because "deficit" can be measured in more than one way depending on exactly which receipts and which expenditures are counted, three distinct deficit measures are used in budget analysis:

Revenue Deficit — the excess of revenue expenditure over revenue receipts (receipts that neither create a liability nor reduce an asset, and expenditure that creates neither an asset nor reduces a liability):

Fiscal Deficit — the excess of total expenditure over the sum of revenue receipts and non-debt capital receipts (capital receipts other than fresh borrowing, such as recovery of loans and disinvestment proceeds). It represents the government's total borrowing requirement for the year:

Primary Deficit — the fiscal deficit minus interest payments on past borrowings. It isolates the government's current borrowing need, stripping out the burden of interest owed on debt already taken:

Worked illustration: suppose Revenue Receipts = ₹50,000 crore, Revenue Expenditure = ₹58,000 crore, Non-debt Capital Receipts = ₹3,000 crore, Total Expenditure = ₹70,000 crore, and Interest Payments = ₹9,000 crore.

• Revenue Deficit = 58,000 − 50,000 = ₹8,000 crore
• Fiscal Deficit = 70,000 − (50,000 + 3,000) = 70,000 − 53,000 = ₹17,000 crore
• Primary Deficit = 17,000 − 9,000 = ₹8,000 crore …