What is Revenue Receipts (RR), Revenue Deficit (RD), Budgetary Deficit (BD), Effective Revenue Deficit (ERD), Fiscal Deficit (FD)

Revenue Receipts: Income earned by the government that does not create liabilities or reduce assets. Revenue Deficit: When the government’s revenue ex

Revenue Receipts

1. Revenue Receipts (RR):

  • Definition: Income earned by the government that does not create liabilities or reduce assets.
  • Types:
    • Tax Revenue: Income from taxes like income tax, GST, etc.
    • Non-Tax Revenue: Income from fees, fines, interest, dividends, etc.
  • Formula:
    RR = Tax Revenue + Non-Tax Revenue

2. Revenue Deficit (RD):

  • Definition: When the government’s revenue expenditure exceeds its revenue receipts. It indicates a shortfall in meeting operational expenses.
  • Formula:
    RD = Revenue Expenditure - Revenue Receipts
  • Implication: A high RD means the government is borrowing to meet its day-to-day needs, which is not sustainable.

3. Budgetary Deficit (BD):

  • Definition: The total shortfall when the government’s expenditure (both revenue and capital) exceeds its total receipts (excluding borrowings).
  • Formula:
    BD = Total Expenditure - Total Receipts (excluding borrowings)
  • Current Relevance: This term is no longer in official use in India and has been replaced by more specific deficits like Fiscal Deficit and Revenue Deficit.

4. Effective Revenue Deficit (ERD):

  • Definition: A part of the Revenue Deficit that excludes grants given for the creation of capital assets (productive grants).
  • Formula:
    ERD = Revenue Deficit - Grants for Creation of Capital Assets
  • Implication: Focuses on the gap in unproductive revenue expenditure, giving a clearer picture of how much of the deficit is for non-asset-building purposes.

5. Fiscal Deficit (FD):

  • Definition: The total borrowing requirement of the government to meet its expenditure when receipts are not enough. It represents the shortfall in overall financing.
  • Formula:
    FD = Total Expenditure - Total Non-Borrowing Receipts
    Or equivalently:
    FD = Revenue Deficit + Capital Expenditure - Non-Debt Capital Receipts
  • Implication: A high Fiscal Deficit indicates greater borrowing, which could lead to rising debt levels and interest payments.

Summary of Formulas:

Term Formula Indicates
Revenue Receipts (RR) Tax Revenue + Non-Tax Revenue Government's operational income
Revenue Deficit (RD) Revenue Expenditure - Revenue Receipts Gap in operational income
Budgetary Deficit (BD) Total Expenditure - Total Receipts (excluding borrowings) Overall shortfall in the budget (obsolete)
Effective Revenue Deficit (ERD) Revenue Deficit - Grants for Creation of Capital Assets Unproductive revenue shortfall
Fiscal Deficit (FD) Total Expenditure - Total Non-Borrowing Receipts (OR) Revenue Deficit + Capital Expenditure - Non-Debt Capital Receipts Total borrowing need of the government

This breakdown explains how each concept relates to the government’s budget and its financial health.

Post a Comment