Revenue Deficit in government Budget – meaning, formula, example class 12

Share your love

Looking, What is Revenue 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 Revenue Deficit (Class 12)

See, there are two components of the Government Budget. Revenue Budget and Capital Budget.

Revenue Deficit is concerned with the Revenue budget. When Revenue expenditures of the government are more than its revenue receipts.

This situation is called a revenue deficit.

In short, government day-to-day expenditures are more than its recurring revenue receipts (income) during a fiscal year.

Definition of Revenue Deficit (Class 12)

Following are the definition mentioned in various references and the NCERT book.

Revenue deficit refers to the excess of total revenue expenditure over total revenue receipts

S.K Aggarwal

Revenue deficit is the excess of revenue expenditure over revenue receipts

T.R Jain

It refers to excess of revenue expenditure over revenue receipts during the given fiscal year.

Sandeep Garg

The revenue deficit refers to the excess of governments revenue expenditure over revenue receipts

NCERT

Formula of Revenue Deficit in Government Budget

Revenue Deficit = Revenue Expenditure – Revenue receipts

Reasons of Revenue Deficit in Government Budget

The basic reason for the revenue deficit is the government’s day-to-day (administrative) expenses are higher than the revenue receipts.

Implications of Revenue Deficit

It implies the government is unable to meet its day-to-day expenditure out of its revenue receipts.

In order to cover, revenue deficit, the government uses savings of other sectors of the economy to finance its consumption expenditure. It indicates that the government is dissaving.

It implies, in order to meet revenue deficit, the government using capital receipts i.e., through borrowing or disinvestment. It means, revenue deficit leads to either increase in liabilities or reduces the assets through disinvestment.

Higher borrowings increase the burden in terms of loan and its interest payments in the coming year.

In long run, the government gets into the trap of loans and its interest payments vicious circle.

What are the measures to reduce the revenue deficit

Revenue deficit can be controlled in two ways.

  • Reduce Revenue Expenditure:- Government can take measures to cut unnecessary and unproductive expenditure.
  • Increase Revenue Receipts:- Government should increase its revenue through taxes and other non tax sources.

Numerical on Revenue deficit with solutions

Q. 1. In the government budget, the revenue deficit is ₹ 40 crore. If revenue receipts are ₹ 80 crores and capital expenditure ₹ 120 crores, then how much is the revenue expenditure.

Solution:-

Revenue Deficit = Revenue Expendiutre – Revenue Receipts

40 = Revenue Expenditure – 80

Revenue Expenditure = ₹ 120 crore

Share your love
Anurag Pathak
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: 3196

Leave a Reply

Your email address will not be published. Required fields are marked *

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