Fiscal Deficit in Government Budget – Meaning, formula, examples class 12

Share your love

Looking, What is Fiscal Deficit in the government budget, its meaning, definition, formula, and practice questions with answers as per class 12 CBSE and other Boards syllabus.

I have explained this topic in detail

What is the meaning of Fiscal Deficit (Class 12)

Fiscal Deficit is a more comprehensive explanation of budgetary deficit as compared to revenue deficit.

When total Budget expenditure (Revenue + Capital) are more than the total Budget receipts (excluding borrowings) during a fiscal year. The government budget is said to be in the fiscal deficit.

Definition of Fiscal Deficit

Fiscal deficit refers to the excess of total expenditure over total receipts (excluding borrowings) during the given fiscal year

Sandeep Garg

Fiscal deficit is the excess of total expenditure over total receipts (other than borrowings)

T.R Jain

Fiscal deficit in a government budget refers to the excess of ‘Total expenditure’ over the ‘sum of revenue receipts and non-debt capital receipts”.

S.K Aggarwal

Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.

NCERT

Note:- Fiscal Deficit is also called Gross Fiscal Deficit

Formula of Fiscal Deficit

Gross Fiscal Deficit = Total Expenditure – (Revenue receipts + Non-debt creating capital receipts)

Fiscal Deficit = Total Budget Expenditure – Revenue receipts – Non-debt capital receipts

Fiscal Deficit = Total budget expenditure – Total budget non-debt receipts

Fiscal Deficit = Total Expenditure (Revenue Expenditure + Capital Expenditure) – Total receipts other than borrowings (Revenue receipts + Capital receipts other than borrowings)

Fiscal Deficit = Budget Expenditure – Budget receipts other than borrowings

Fiscal Deficit = Revenue Deficit + Capital Expenditure – non-debt creating capital receipts

A large share of revenue deficit in fiscal deficit indicated that a large part of borrowing is being used to meet its consumption expenditure needs rather than investment.

Fiscal Deficit = Total Borrowing by the government in a fiscal year

Fiscal Deficit = Primary Deficit + Interest Payments

Total Borrowing by Government = Net Borrowing at home + Borrowing from RBI + Borrowing from abroad.

Net Borrowing at home includes

  1. Directly borrowed from the public through debt instruments (for example, the various small savings scheme)
  2. Indirectly from commercial banks through statutory Liquidity Ratio (SLR).

Reasons for Fiscal Deficit in government Budget

The reason is simple, government total budget expenditure or more than revenue receipts other than borrowings.

Implications of Fiscal Deficit

A fiscal deficit in the government budget implies the total borrowing a government has to go to meet the deficit total expenditure.

A greater fiscal deficit implies greater borrowings by the government.

The main implication is the debt trap. A large part of government revenue goes into pay the loan installments.

It shows that how a government is living beyond its means.

What are the measures to correct Fiscal Deficit

Reduce budget Expenditure:- By reducing revenue expenditure government can cop with the fiscal deficit.

Increase Revenue Receipts and finance budget deficit through disinvestment and recovery of loans.

Numerical on Fiscal Deficit with solutions

Q. 1 The interest payments as per the government budget during a year are ₹ 1,30,000 crores. If total borrowing requirements of the government are estimated at ₹ 240000 crores, then how much is a Fiscal deficit.

Solution:-

Fiscal Deficit = Total Borrowing

Fiscal Deficit = ₹ 2,40,000

Q. 2 From the following data about a Government Budget, find out a) Revenue Deficit b) Fiscal Deficit, c) Primary Deficit

Particularscrore
1. Capital Receipts net of Borrowings90
2. Revenue Expenditure110
3. Interest Payments20
4. Revenue Receipts70
5. Capital Expenditure130

Solution:-

Fiscal Deficit = Revenue Expenditure + Capital Expenditure – Revenue Receipts – Capital Receipts net of Borrowings

Fiscal Deficit = 110 + 130 – 70 – 90

Fiscal Deficit = ₹ 80

Share your love
Default image
Anurag Pathak

Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.

Articles: 1635

Leave a Reply

close

Ad Blocker Detected!

Our Website is made possible by displaying online advertisements to our visitors. Please consider supporting us and remove the AD - Blocker to read this article.

Refresh