What is Budget, Types of Deficit with explanation, Difference between Budget Deficit and Fiscal Deficit and Problems of Fiscal deficit

Budget, Types of Deficit in India

Budget- Budget shows the Revenue & expenditure of the government. The government in India often spends more than what it earns.

                      

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A budget can be a balance budget, surplus budget or a deficit budget.
 *Balance Budget- If receipts are equal to expenditure.
 *Surplus Budget- If receipts are higher than expenditure.
 *Deficit Budget- If expenditure is more than receipts.

Budget has two accounts.

1) Revenue account- It is a day to day account.

a) Revenue receipt- It is govt. day to day receipts which includes Tax receipts (Direct & indirect), some non tax receipts like from penalties on breach of law, surplus of public enterprises, fee charged on govt. services ex. Driving license etc.

b) Revenue Expenditure- It includes expenditure on law & order, subsidies, Defence, interest payments, Civil administration.

2) Capital account-It is a long term account

a) Capital receipt-

- Proceeds from sale of assests.

- Proceeds from Disinvestment (i.e selling of govt share in PSU to public)

- Market borrowing from banks & other financial Institutions.

- Recovery of Past loans.

b) Capital Expenditure

- Expenditure on infrastructure

- Loan given to state govt. & Union Territory

- Repayment of past loan

Type of Deficits-

1) Revenue Deficit- When revenue expenditure is more than revenue receipts.

2) Budget Deficit- When Total expenditure (i.e Revenue expenditure + Capital Expenditure) is more than Total Receipts (i.e. Revenue receipts + Capital receipts) is termed as budget deficit.

3) Fiscal deficit- When Total Expenditure (i.e. Capital & Revenue) is more than total revenue receipts and capital receipts (excluding borrowing & other liabilities)

Or

Fiscal deficit is Budget deficit + Borrowing & other liabilities

4) Primary deficit- It is Fiscal deficit – Interest payments.

5) Monetised Deficit- It is the net increase in RBI credit to the government by printing fresh currency.

Difference between Budget Deficit & Fiscal deficit

Budget deficit	Fiscal deficit
1) It is the total Expenditure minus total receipts in which Capital receipt include borrowing & other liabilities from financial institution. 2) It is a misleading concept because it shows deficit after taking into account govt. borrowings.	1) It is the total expenditure minus total receipts but here Capital receipt exclude borrowing & other liabilities. 2) It is a better concept to find deficit.

Problems of fiscal Deficit-

To finance the deficit if govt. borrow from RBI then it increases the liquidity which leads to inflation.Inflation encourage import which leads to Current account deficit and hence Balance of payment.

If government borrows from Bank or other financial Institution then it leads to increase of interest rate. If interest rate will rise then loan will become expensive. So the money which could have been go for productive uses like investment in Agriculture, Industry infrastructure etc. is using for financing the deficit which leads to slow growth rate & unemployment.

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