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- Current Relevance: This term is no longer in official use in India and has been replaced by more specific deficits like Fiscal Deficit and Revenue Deficit.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.
