Thursday, November 19, 2009

Fiscal Deficit

  • The difference between total revenue and total expenditure of the government is termed as fiscal deficit.
  • It is an indication of the total borrowings needed by the government.
  • While calculating the total revenue, borrowings are not included.
  • Generally, fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure.
  • A deficit is usually financed through borrowing from either the Central Bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.
  • A mismatch in the expected revenue and expenditure can result in revenue deficit.
  • Revenue deficit arises when the government’s actual net receipts is lower than the projected receipts.
  • A revenue deficit does not mean actual loss of revenue.