There is a difference between fiscal deficit and revenue deficit.
IANS, New Delhi. Regarding the upcoming Union Budget 2026, all eyes of the market, investors and common citizens are fixed on the financial position of the government. Apart from the tax and expenditure announcements in the budget, there are some important figures which reflect the economic health of the country. Among these, the most discussed are fiscal deficit and revenue deficit. Therefore, it is very important for everyone to know about them.
What is fiscal deficit?
Fiscal deficit means the difference between the total expenditure of the government and its total income (except borrowing). In simple words, it tells how much money the government will have to borrow to meet its expenses. For example, if the central government spends Rs 50 lakh crore in a year, but its income from taxes and other sources is Rs 35 lakh crore, then the fiscal deficit will be Rs 15 lakh crore. Fiscal deficit is one of the most watched figures of the budget, as it reflects the financial discipline of the government. Low fiscal deficit indicates that the government is in control of its expenditure and income, which increases investor confidence.
How is fiscal deficit met?
At the same time, higher fiscal deficit means more borrowing, which can increase interest rates and put pressure on private investment. Apart from this, it decides how much scope the government has to spend on infrastructure, welfare schemes and defence. The government meets the fiscal deficit mainly through borrowing, for which government bonds are issued in the domestic market. Funds are taken from small savings schemes and provident funds (PF) and to some extent foreign borrowings are also done. Higher borrowing today increases the interest burden in years to come, reducing space for development spending in future budgets.
When does government debt increase?
High fiscal deficit is not always considered negative. In exceptional circumstances such as economic slowdown, global uncertainty or a pandemic, higher government spending can support the economy. However, if the fiscal deficit remains high for a long time, it increases government debt and may put pressure on inflation and interest rates. Therefore, governments usually present a roadmap for fiscal consolidation i.e. deficit reduction for the medium term.
What is revenue deficit?
At the same time, revenue deficit reflects the situation when the daily expenditure of the government exceeds its regular income. It is seen as the difference between the revenue expenditure and revenue receipts of the government. When expenditure exceeds income, a revenue deficit is recorded. Revenue receipts include the government's tax income such as income tax, GST and corporate tax, as well as non-tax income such as dividends, fees and interest from government companies. the same revenue
Expenditures include those expenses which do not create any permanent assets, such as salaries of employees, pensions, subsidies, defense spending, welfare schemes and interest payments. The calculation of revenue deficit is straightforward. For example, if the government's revenue expenditure is Rs 30 lakh crore and revenue income is Rs 27 lakh crore, then the revenue deficit will be Rs 3 lakh crore. In the budget it is usually shown as a percentage of GDP.
Revenue deficit is an indicator of the financial health of the government.
Revenue deficit is considered an important indicator of the financial health of the government. High revenue deficit shows that the government is borrowing for everyday expenses instead of investment. This limits the resources available for capital expenditure on infrastructure, such as roads and railways, which are essential for long-term economic growth. When there is a revenue deficit, the government has to borrow to meet the shortfall, thereby increasing public debt. Prolonged revenue deficit increases the interest burden on future budgets and may impact private investment. For this reason, budget analysts keep a special eye on what steps the government is taking to increase its income and rationalize its expenses.
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