11/23/13 What is Budget Deficit ?

Types of Budgetary Deficit - India Trends

What is a Budget Deficit ? Meaning
When the governent e!penditure e!ceeds revenues" the governent is having a #udget deficit$ Thus the #udget deficit is
the e!cess of governent e!penditures over governent receipts %incoe&$ When the governent is running a deficit" it is
spending ore than it's receipts$
Iage (redits ) *+e! ,rech$
The governent finances its deficit ain+y #y #orro-ing fro the pu#+ic" through se++ing #onds" it is a+so financed #y
#orro-ing fro the (entra+ Ban.$
Types of Budgetary Deficit
The different types of #udgetary deficit are e!p+ained in fo++o-ing points /-
1$ 0evenue Deficit
0evenue Deficit ta.es p+ace -hen the revenue e!penditure is ore than revenue receipts$ The revenue receipts coe fro
direct 1 indirect ta!es and a+so #y -ay of non-ta! revenue$
The revenue e!penditure ta.es p+ace on account of adinistrative e!penses" interest payent" defence e!penditure 1
su#sidies$
Ta#+e #e+o- indicate revenue deficit of the centra+ governent of India$
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11/23/13 What is Budget Deficit ? Types of Budgetary Deficit - India Trends
3ro the a#ove ta#+e it is c+ear that revenue deficit -as 0s$ 14"562 crores in 1772-71 and 0s$ 78"688 crores in 2225-26$ *s
proportion of ,D9" revenue deficit increased fro 1$5: in 1742-41 to 3$3: in 1772-71 and dec+ined to 2$;: in 2225-26$ The
dec+ine is due to the passing of the 3isca+ 0esponsi#i+ity and Budget Manageent *ct in 2222$
2$ Budgetary Deficit
Budgetary Deficit is the difference #et-een a++ receipts and e!penditure of the governent" #oth revenue and capita+$ This
difference is et #y the net addition of the treasury #i++s issued #y the 0BI and dra-ing do-n of cash #a+ances .ept -ith the
0BI$ The #udgetary deficit -as ca++ed deficit financing #y the governent of India$ This deficit adds to oney supp+y in the
econoy and" therefore" it can #e a a<or cause of inf+ationary rise in prices$
Budgetary Deficit of centra+ governent of India -as 0s$ 2"5;6 crores in 1742-41" it -ent up to 0s$ 11"38; crores in 1772-71 to 0s$
13"148 crores in 1776-7;$
The concept of #udgetary deficit has +ost its significance after the presentation of the 177;-74 Budget$ In this #udget" the
practice of ad hoc treasury #i++s as source of finance for governent -as discontinued$ *d hoc treasury #i++s are issued #y the
governent and he+d on+y #y the 0BI$ They carry a +o- rate of interest and fund oneti=ed deficit$ These #i++s -ere rep+aced
#y -ays and eans advance$ Budgetary deficit has not figured in union #udgets since 177;-74$ >ince 177;-74" instead of
#udgetary deficit" ,ross 3isca+ Deficit %,3D& #ecae the .ey indicator$
3$ 3isca+ Deficit
3isca+ Deficit is a difference #et-een tota+ e!penditure %#oth revenue and capita+& and revenue receipts p+us certain non-de#t
capita+ receipts +i.e recovery of +oans" proceeds fro disinvestent$
In other -ords" fisca+ deficit is e?ua+ to #udgetary deficit p+us governents ar.et #orro-ings and +ia#i+ities$ This concept
fu++y ref+ects the inde#tedness of the governent and thro-s +ight on the e!tent to -hich the governent has gone #eyond its
eans and the -ays in -hich it has done so$ in 1742-41" fisca+ deficit -as 0s$ ;";33 crores$ Bet-een 1742-41 and 1772-71
it increased 5 ties to 0s$ 3;"626 crores$ >ince the introduction of econoic refors in 1771-72" the governent has tried
to restrict the gro-th of fisca+ deficit$ *s percentage of ,D9 fisca+ deficit dec+ined fro 6$2: in 2221-22 to 8$1: in 2225-26$
8$ 9riary Deficit
The fisca+ deficit ay #e decoposed into priary deficit and interest payent$ The priary deficit is o#tained #y deducting
interest payents fro the fisca+ deficit$ Thus" priary deficit is e?ua+ to fisca+ deficit +ess interest payents$ It indicates the rea+
position of the governent finances as it e!c+udes the interest #urden of the +oans ta.en in the past$
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11/23/13 What is Budget Deficit ? Types of Budgetary Deficit - India Trends
Ta#+e #e+o- indicate priary deficit as a 9ercentage of ,D9$
9riary deficit of the centra+ governent of India -as 16"124 crores in 1772-71" it reduced to 18"571 crores in 2225-26$
5$ Monetised Deficit
Monetised Deficit is the su of the net increase in ho+dings of treasury #i++s of the 0BI and its contri#utions to the ar.et
#orro-ing of the governent$ It sho-s the increase in net 0BI credit to the governent$ It creates e?uiva+ent increase in high
po-ered oney or reserve oney in the econoy$
(onc+usion
*++ these #udgetary deficit revea+ fisca+ i#a+ance$ 3isca+ i#a+ance 1 #udget deficit resu+t in harfu+ conse?uences +i.e
ounting inf+ation" deficit in#a+ance of payent" etc$ It has a+so adverse+y affect the gro-th of the econoy$ The governent
ust introduce fisca+ correction po+icies to overcoe the deficit #udget and fisca+ crisis$
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