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It is excess of Revenue expenditure over Revenue Receipts

Revenue Deficit = Revenue Exp - Revenue Income

It includes only those transactions which affect current income and expenditure of govt

Revenue Deficit - Teachoo.JPG

Example 1-How to Calculate Revenue Deficit - Teachoo.JPG

Example 2-How to Calculate Revenue Deficit - Teachoo.JPG

What is Effect of Revenue Deficit?

EFFECT OF REVENUE DEFICIT - Teachoo.JPG

When a govt incurs Revenue Deficit

It means Govt is dissaving

It is using saving of other sectors of economy to finance consumption exp

(Example- Money received from sale of shares in PSU (Disinvestment) is a capital receipt

It will be used to meet Revenue Deficit

Option 1-What happens If Govt Dissaves in case of Revenue Deficit - Teachoo.JPG

It also means that govt will have to borrow to meet his personal expenditure

This will lead to increase in debt (loan) and int liability on loan

Option 2-What happens If Govt Borrows  in case of Revenue Deficity - Teachoo.JPG

To reduce this deficit

Govt will try to reduce its spending

Now many expenditure are fixed ,they cant be reduced

(Example: Salary of govt employees cant be reduced)

 

Govt reduces welfare expenditure like expenditure on hospital, schools etc

It will have adverse affect in long run on welfare

 

Govt may also reduce Capital expenditure (make less purchase of fixed assets)

hence it will affect growth in long run

Option 3-What happens If Govt cuts Expenditure in case of Revenue Deficit - Teachoo.JPG

How To Reduce Revenue Deficit - Teachoo.JPG

Second Method to Reduce Revenue Deficit - Teachoo.JPG

NCERT Questions

No questions in this part

Other Books

Question 1

In the following questions, select the correct answers:

Revenue deficit is equal to:

  1. Total Expenditure - Revenue Receipts
  2. Revenue Expenditure - Revenue Receipts
  3. Fiscal Deficits - Interest Payments
  4. Fiscal Deficits - Revenue Expenditure
View Answer

Oswaal Questions

Question 1

In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R).

Assertion (A): Revenue deficit includes capital receipts and capital expenditure.

Reason (R): Revenue deficit is related to revenue expenditure and revenue receipts of the government.

Mark the correct choice:

  1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
  2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
  3. Assertion (A) is true, but Reason (R) is false.
  4. Assertion (A) is false, but Reason (R) is true.
View Answer

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Transcript

Second Method to Reduce Revenue DeficitWe can increase Revenue Expenditure (like by Decrease Govt Expenditure on Welfare Projects) Example Suppose my Revenue Deficit is 100 as shown below Revenue Receipts Revenue Expenditure Revenue Surplus Revenue Déficit 1000 1100 0 100 Answer Increase Receipts Expenditure by 100 Revenue Receipts Revenue Expenditure Revenue Déficit How To Reduce Revenue Deficit? We can Increase Revenue Receipts (like by -Increasing Taxation) Example Suppose my Revenue Deficit is 100 as shown below Revenue Receipts Revenue Expenditure Revenue Surplus Revenue Déficit Answer Increase Revenue Receipts by 100 Revenue Receipts Revenue Expenditure Revenue Surplus Revenue Déficit Option 3- What happens If Govt cuts Expenditure in case of Revenue Deficit Revenue Deficit Committed Exp Welfare Exp Can't be reduced Causes Adverse effect in long run on welfare Capital Exp Affects growth Option 2- What happens If Govt Borrows in case of Revenue Deficity Revenue Deficit Govt Borrows (Take loans or issue bonds) Govt has to pay Interest Increase in Debt Increase in Interest Liability Option 1- What happens If Govt Dissaves in case of Revenue Deficit Revenue Deficit Govt Dissaves (Use savings of Other sectors) Capital Receipt use to Pay Revenue Exp Example Funds received from Sale of PSU Used to pay Salaries To Govt Employees EFFECT OF REVENUE DEFICIT Revenue Expenditure 3200 Less Revenue Receipts 2000 Revenue Deficit 1200 Option 1 Govt Dissaves Option 2 Govt Borrows Option 3 Govt cuts Expenditure Example 2 How to Calculate Revenue Deficit? Revenue Receipts Capital Receipts Total Receipts Revenue Expenditure Capital Expenditure Total Expenditure Answer Revenue Expenditure 3200 Less Revenue Receipts 2000 Revenue Deficit 1200 Note- To Calculate Revenue Deficit, we take only Revenue items and not Capital Receipts and Exp. Example 1 How to Calculate Revenue Deficit? Example Revenue Receipts Revenue Expenditure Revenue Surplus Revenue Déficit Revenue Deficit= Revenue Expenditure Less Revenue Deficit (We show it in positive by doing Expenditure-Receipts (1100-1000) =100 and not Receipts-Expenditutre 1000-1100=-100 Revenue Deficit Only Revenue (Not Capital) Excess Of Expenditure Over Income It is excess of Revenue expenditure over Revenue Receipts Revenue Deficit= Revenue Expenditure Less Revenue Deficit

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.