Fiscal deficit and revenue deficit are terms used in public finance to measure the financial health of a government. They represent different aspects of the government’s budgetary situation. Here’s the difference between fiscal deficit and revenue deficit:
- Fiscal Deficit:
- Definition: Fiscal deficit is the difference between a government’s total expenditures and its total revenue (excluding money from borrowings) during a specific period, usually a fiscal year.
- Components: It includes both revenue expenditures (day-to-day expenses like salaries, subsidies, interest payments) and capital expenditures (investments in assets like infrastructure, machinery).
- Indication: A fiscal deficit occurs when a government spends more money than it earns in revenue. It is an indicator of the total borrowing requirements of the government.
- Sources of Financing: Fiscal deficit is financed through borrowings from various sources like issuing bonds, loans, etc.
- Revenue Deficit:
- Definition: Revenue deficit, on the other hand, is the difference between the government’s revenue expenditure and its revenue receipts (excluding borrowings) during a particular period.
- Components: It includes day-to-day expenses that do not create or enhance assets. These are regular operational expenditures.
- Indication: Revenue deficit shows that the government is unable to meet its day-to-day expenses from its regular revenue sources, and it needs to borrow for these expenses.
- Sources of Financing: Revenue deficit is typically financed through borrowings since it represents a shortfall in meeting the regular operational expenses.
In summary, while fiscal deficit encompasses all expenditures and revenues, including capital items, revenue deficit specifically focuses on the shortfall in meeting day-to-day operational expenses. Fiscal deficit gives a broader picture of the government’s overall financial health, including both operational and capital aspects, whereas revenue deficit concentrates on the sustainability of regular expenditures.