5 important concepts of budgetary deficit is as follows
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2/10/2014 5 Important Concepts of Budgetary Deficit is as Follows
http://www.yourarticlelibrary.com/economics/5-important-concepts-of-budgetary-deficit-is-as-follows/2681/ 1/9
5 Important Concepts of BudgetaryDeficit is as Follows
by Smriti Chand Economics
Budgetary deficit is a multi-dimensional concept. It is quite easy to say
that a budgetary deficit is simply the excess of public expenditure over
public revenue. However, in practice, the concept admits of many
variations, and yields widely divergent measures of budgetary deficit.
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2/10/2014 5 Important Concepts of Budgetary Deficit is as Follows
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Image Courtesy : sfexaminer.com/binary/30cb/money1.jpg
The existence of such a large number of measures is explained by the
fact that each measure has analytical and policy relevance, and there is
no single measure which may be universally preferred over all others for
all time to come.
The choice of the correct measure would depend upon the purpose of
analysis. A brief description of the various concepts of budgetary deficit
is as follows.
1. Revenue Deficit:
The excess of expenditure on revenue account over receipts on revenue
account measures revenue deficit.
Receipts on revenue account include both tax and non-tax revenue and
also grants. Tax revenue is net of States share as al so net of assignment
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of Union Terri Tory taxes to local bodies. The non-tax re venue includes
interest receipts, dividends and profits, and non-tax receipts of Union
Territorys Grants include grants from abroad also.
Expenditure on revenue account includes both Plan and Non-Plan
components. Thus, the Plan component includes Central Plan and
Central Assistance for States and Union Territory Plans.
Non- Plan expenditure includes interest payments, defence expenditure
on revenue account, subsidies, debt-relief to farmers, postal services,
police, pensions, other general services, social services, economic
services, non-plan revenue grants to States and Union Territories,
expenditure of Union Territories with legislature, and grants to foreign
governments.
Revenue deficit means dissavings on government account and the use of
the savings of other sectors of the economy to finance a part of the
consumption expenditure of the government.
An important objective of fiscal policy should be to ensure surplus in
the revenue budget so that the government also contributes to raising
the rate of saving in the economy.
In 2008-09, revenue deficit of the central government is at Rs. 2, 41,273
crore (Revised estimates) as compared to Rs. 52,569 crore in the
previous year. In percentage terms, the revenue deficit is 4.5 per cent
(RE) of the gross domestic product in 2008-09, registering an increase
of 3.4 per cent from the previous year.
2. Capital Deficit:
The excess of capital disbursements over capital receipts measures the
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capital deficit.
Capital Deficit = Expenditure on Capital Account Capital Receipts
Plan capital disbursements include those on Central Plan and Assistance
for States and Union Territories. Non-Plan Capital disbursements
include defence expenditure on Capital account, other non-plan capital
outlay, loans to public enterprises, States and Union Territory
Governments, foreign governments and others; and non-plan capital
expenditure of Union Territories without legislature. The items of
capital receipts include recoveries of loans extended by the centre itself,
but only net receipts of loans raised by it.
It may be noted that receipts on account of sale of 91 days treasury bills
and drawing down of cash balances do not form a part of capital
receipts. However, net receipts on account of sale of 182 days and 364
days treasury bills and sales proceeds of government assets are included
in capital receipts.
3. Fiscal Deficit:
Fiscal deficit is the difference between revenue receipts plus certain
non-debt capital receipts and the total expenditure including loans net
of repayments.
Fiscal Deficit = Total Expenditure (Revenue Receipts + Non-debt
Capital Receipts)
In short, fiscal deficit indicates the total borrowing requirements of the
government from all sources. This may also be called Gross Fiscal
Deficit (GFD). It measures that portion of government expenditure
which is financed by borrowing and drawing down of cash balances.
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It should be noted that in India, borrowings are net amounts (that is,
gross borrowings less repayments). Similarly, loans extended by
Government of India are included on the expenditure side of capital
account while recoveries are included on the receipts side. Therefore,
the amount of loans and advances by Government of India is also
reduced.
It is often stated that fiscal deficit measures an addition to the liabilities
of Government of India. In 2008 -09, fiscal deficit was at a figure of Rs.
3, 26,515 crore (RE) which is 6.1 per cent of Gross Domestic Product.
Fiscal deficit was of the order of 4 per cent of gross domestic product
(GDP) at the beginning of 1980s, and was estimated at more than 8 per
cent in 1990-91. The growing fiscal deficit had to be met by borrowing
which led to a mammoth internal debt of the government.
The servicing of this debt has become a serious problem. Public debt in
India is mostly subscribed to by commercial banks and financial
institutions. A judicious macro-management of the economy requires a
progressive reduction in the fiscal deficit and revenue deficit of the
government.
4. Primary Deficit:
It is simply fiscal deficit minus interest payments. In the 2008-09
budget, primary deficit was shown at a figure of Rs. 1, 33,821 crore
(Revised estimates).
This measure is also referred to as Gross Primary Deficit (GPD).
Measures of deficit described above (except capital deficit) include
payments and receipts of interest. These transactions, however, reflect a
consequence of past actions of the government, namely, loans taken and
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given in years prior to the one under consideration.
Exclusion of interest transactions would, therefore, enable us to see the
way the government is currently conducting its financial affairs.
Accordingly, Primary deficit is defined as Fiscal Deficit less net interest
payments, (that is less interest payments plus interest receipts).
Net primary deficit is obtained by subtracting Loans and Advances
from net fiscal deficit. It is also equal to Fiscal Deficit less interest
payments plus interest receipts less loans and advances.
The primary deficit which was 4.3 per cent of GDP during 1990-91 came
down to 1.5 per cent of GDP during 1997-98 and in the revised estimates
for the year 2008-09 it was 2.5 per cent of GDP.
5. Monetised Deficit:
Besides ways and means advances, the Reserve Bank of India also
supports the governments borrowing programme. Monetised deficit
indicates the level of support extended by the Reserve Bank of India to
the governments borrowing programme.
Monetised deficit is defined as net increase in net Reserve Bank of India
credit to central government. The rationale for this measure of deficit
flows from the inflationary impact which a budgetary deficit exerts on
the economy.
Since borrowings from Reserve Bank of India directly add to money
supply, this measure is termed monetised deficit. It is obvious that
monetised deficit is only a part of fiscal deficit.
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Related articles:
1. Short Essay on Fiscal Deficit
2. What are the Different Kinds of Budget?
3. Short Essay on Deficit Spending in India
4. Get Complete Information About Revenue Budget
5. Get Complete Information on Twelfth Finance Commission of India
6. What are the Tolerable Limits of Deficit Spending?
7. Balance of Payments (BoP) Consists of Two Accounts Current
Account and Capital Account
8. What are the Main Economic Classifications of Capital
Expenditures?
9. What are the Important Functional Classifications of Capital
Expenditures?
10. Some Important Recommendations Made by Chakravarty
Committee
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