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REVENUE DEFICIT

BY
Saranya E
Roshni Gopalakrishnan

Before we move on
To understand the concept of revenue deficit, we need to
quickly understand the following two terms:
Revenue Expenditure:
Revenue expense is incurred to earn income for a particular
accounting period. The benefits arising out of revenue
expenditure expires in the same accounting period. (Short
Term) Revenue Expense relates to an accounting period.
Revenue Expenses are shown in the Profit & Loss Account.
Revenue Expenditures are transferred to profit and loss
account in the year of spending.
Revenue Receipts :
Receipts which arise in course of normal business activities are
revenue receipts.

REVENUE DEFICIT
Revenue deficit is concerned with the revenue expenditures
and revenue receipts of the government. It refers to
excess of revenue expenditure over revenue receipts
during the given fiscal year.
Revenue Deficit = Revenue Expenditure Revenue Receipts

Revenue deficit signifies that governments own revenue is


insufficient to meet the expenditures on normal functioning
of government departments and provisions for various
services.

Let's take an hypothetical example, if a country expects a


revenue receipt of Rs 100 and expenditure worth Rs 75, it
can result in net revenue of Rs 25. But the actual revenue of
Rs 90 is realised and an expenditure is Rs 70. This translates
into net revenue of Rs 20, which is Rs 5 lesser than the
budgeted net revenue and called as revenue deficit.

Importance
Since it is largely related with the recurring expenditure.
Therefore, high revenue deficit gives a warning to the
government either to cut expenditure or to increase revenue
receipts. It also implies requirement burden in future .

Implications of Revenue Deficit


1. It indicates the inability of the government to meet

its regular and recurring expenditure in the proposed


budget.

2. It implies that government is dissaving, i.e.


government is using up savings of other sectors of the
economy to finance its consumption expenditure.
3. It also implies that the government has to make up
this deficit from capital receipts, i.e. through
borrowings or disinvestments. It means, revenue
deficit either leads to an increase in liability in the
form of borrowings or reduces the assets through
disinvestment.

4. Use of capital receipts for meeting the extra


consumption expenditure leads to an inflationary
situation in the economy Higher borrowings
increase the future burden in terms of loan
amount and interest payments.
5. A high revenue deficit gives a warning signal to
the government to either curtail its expenditure
or increase its revenue.

Measure to Reduce Revenue


Deficit:
(i)Reduce Expenditure:
Government should take serious steps to reduce its
expenditure and avoid unproductive or unnecessary
expenditure.
(ii)Increase Revenue:
Government should increase its receipts from various
sources of tax and non-tax revenue.

DIFFERENCE BETWEEN REVENUE


DEFICIT AND FISCAL DEFICIT

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