Check sibling questions

It is difference between Total Govt Expenditure and total receipts excluding borrowings

 

Hence, in this case

We take total expenditure (both Revenue and Capital)

We take total Receipts (both Revenue and capital) but we do not include Capital Receipts which create debt (loan)

WHAT IS FISCAL DEFICIT - Teachoo.JPG

Note

Capital Receipts normally include following:

Recovery of loan given by Central Govt to State govt etc

Sale Proceeds from Disinvestment (Amt Received from sale of shares of PSU)

Loan taken by Central Govt (from RBI, Outside country, Public)

 

In this case, first 2 are called Non Debt Creating Capital Receipts

(We take them while calculating Fiscal Deficit)

 

And last one is called Debt Creating Capital Receipt

(We exclude it while calculating Fiscal Deficit)

Type of Capital Receipts - Teachoo.JPG

Example 1-How to calculate Revenue and Fiscal Deficit - Teachoo.JPG

Example 2-CALCUALTE REVENUE DEFICIT AND FISCAL DEFICIT - Teachoo.JPG

Calculation of Revenue Deficit - Teachoo.JPG

Example 3-Calculate Revenue Deficit and Fiscal Deficit - Teachoo.JPG

Answer-Calculation of Revenue Deficit - Teachoo.JPG

Example 4 Calculate Revenue Deficit and Fiscal Deficit - Teachoo.JPG

Answer-Revenue Deficit - Teachoo.JPG

EXAMPLE 5 NCERT Page 71 - Teachoo.JPG

ANSWER - Teachoo.JPG

Why Gross Fiscal Deficit Is Equal to Borrowings - Teachoo.JPG

Formula Derivation Why Fiscal Deficit Borrowins - Teachoo.JPG

WHY REVENUE DEFICIT IS A PART OF FISCAL DEFICIT - Teachoo.JPG

What does Revenue and Fiscal Deficit Indicate - Teachoo.JPG

Example Effect of increase in Excess  ConsumptionExpenditure  on Deficit - Teachoo.JPG

Answer-CALCULATION OF REVENUE DEFICIT (2) - Teachoo.JPG

NCERT Questions

Question 3

‘The fiscal deficit gives the borrowing requirement of the government’.

Elucidate.

View Answer

Question 4

Give the relationship between the revenue deficit and the fiscal deficit.

View Answer

Other Books

Question 1

In the following questions, select the correct answers:

Borrowings are equivalent to:

  1. Revenue Deficit
  2. Fiscal Deficit
  3. Primary Deficit
  4. None of these
View Answer

Question 2

In a government budget, revenue deficit is Rs50,000 crores and borrowings are Rs75,000 crores.

The fiscal deficit will be:

  1. Rs25,000 crores
  2. Rs 75,000 crores
  3. Rs 1,25,000 crores
  4. Rs 50,000 crores
View Answer

Question 3

Which of the following statement is not true for fiscal deficit?

A. fiscal deficit:

  1. represents the borrowings of the government
  2. is the difference between total expenditure and total receipts of the government
  3. is the difference between total expenditure and total receipts other than borrowings
  4. increases the future liability of the government
View Answer

Oswaal Questions

Question 1

Which of the following statements is true?

  1. Government Borrowings from the World Bank is a Revenue Receipt.
  2. Higher fiscal deficit is the result of higher revenue deficit.
  3. The loans taken by government represents a situation of fiscal deficit.
  4. The excess of capital receipts over the revenue receipts is called Revenue deficit.
View Answer

Question 2

Assertion (A): Fiscal deficit is the difference between primary deficit and interest payment.

Reason (R): Fiscal deficit is the sum total of primary deficit and interest payment.

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

Question 3

Read the news report given below and answer the questions that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to Rs5.54 lakh crore in financial year 2022 in order to push growth.

The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional Rs2 lakh crore to states for capital expenditure over and above its own commitment.

We will also work out specific mechanism to nudge states to spend more of their Budget on creation of infrastructure, Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year's budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and "minimum government, maximum governance," the finance minister had asserted

And capital expenditure is an important component that drives the growth. - "Budget 2021: Finance Minister Proposes Sharp 34.5%25 Hike in Capital Expenditure." - NDTV Budget 2021 - February 01, 2021

 

Question 1

Why has the Finance ministry hiked the Capital Expenditure?

  1. To recover from the Covid-19 pandemic
  2. To bring the economy back on track
  3. Both (A) and (B)
  4. Neither (A) nor (B)
View Answer

Question 2

_______________ is an important component that drives the growth.

  1. Capital Expenditure
  2. Revenue Expenditure
  3. Capital Receipts
  4. Revenue Receipts
View Answer

Question 3

Which objective of the Government Budget does the increase in capital expenditure serve?

  1. Encouragement of economic growth
  2. Stability in the economy
  3. Generation of employment
  4. All of the above
View Answer

Question 4

What problem can the increase in this Capital Expenditure create?

  1. Fiscal Deficit
  2. Revenue Deficit .
  3. Primary Deficit
  4. Budgetary Deficit
View Answer

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Transcript

WHAT IS FISCAL DEFICIT? It is difference between total Receipts and Total Expenditure Excluding borrowings ADD REVENUE EXP CAPITAL EXP TOTAL EXPENDITURE Less REVENUE RECEIPTS CAPITAL RECEIPTS (Non Debt)* FISCAL DEFICIT *Here we take all capital receipts But do not include borrowings Type of Capital Receipts Receipts which Create Liability Receipts which Reduce Assets Example Loan taken They are called Debt Creating Capital Receipt These are taken while calculating Fiscal Deficit They are called Non Debt Creating Capital Receipt These are not taken while calculating Fiscal Deficit Example 1 How to calculate Revenue and Fiscal Deficit RECEIPTS Revenue Receipts Capital Receipts (Non-debt) Capital Receipts (Debt) Total EXPENDITURE Revenue Exp Capital Exp Total 3000 2000 1000 6000 4500 1500 6000 Revenue Deficit =Revenue Exp-Revenue Receipts =4500-3000 =1500 Fiscal Deficit =Total Exp-Revenue Receipt- Capital Receipt (non debt) =6000-3000-2000 =1000 Example 2 CALCUALTE REVENUE DEFICIT AND FISCAL DEFICIT REVENUE RECEIPTS Tax Revenue Non Tax Revenue Total CAPITAL RECEIPTS Recovery Of Loans Given From Sale of PSU(disinvestment) From Borrowings Total REVENUE EXPENDITURE CAPITAL EXPENDITURE What is Revenue Deficit and Fiscal Deficit 100 200 300 50 250 400 700 600 400 Answer Calculation of Revenue Deficit Revenue Expenditure 600 Revenue Receipts 300 Revenue Deficit 300 Calculation of Fiscal Deficit Revenue Exp Capital Exp Total Expenditure Revenue Receipts Capital Receipts (Non-debt) Total Receipts Fiscal Deficit 600 400 1000 300 300 600 400 NOTE Borrowings Fiscal deficit hence, Fiscal Deficit=Borrowings 400 400 Example 3 Calculate Revenue Deficit and Fiscal Deficit REVENUE RECEIPTS Tax Revenue Non-tax Revenue Total CAPITAL RECEIPTS Recovery of Loan Given From Borrowings Total REVENUE EXPENDITURE CAPITAL EXPENDITURE 1.8 1.2 3.0 0.9 9.1 10.0 5 8 WHAT IS REVENUE DEFICIT AND FISCAL DEFICIT? Answer Calculation of Revenue Deficit Revenue Expenditure 8 Revenue Receipts 3 Revenue Deficit 5 Calculation of Fiscal Deficit Revenue Exp 5 Capital Exp 8 Total Expenditure 13 Revenue Receipts 3 Capital Receipts 0.9 (Non Debt) Total Receipts 3.9 FISCAL DEFICIT 9.1 NOTE BORROWINGS 9.1 FISCAL DEFICIT 9.1 HENCE FISCAL DEFICIT=BORRWINGS Example 4 Calculate Revenue Deficit and Fiscal Deficit Revenue Receipts (a + b) 7 Tax Revenue 6 Non-Tax Revenue 1 Revenue Expenditure 10 Out of which Interest Payments 3 Major Subsidies 1 Defence Expenditure 2 Capital Receipts (a + b +c) 5 Recovery of loans 1 Receipts from PSU Disinvestment 1 (c) Borrowings 3 Capital Expenditure 2 ANSWER Revenue Deficit Revenue Expenditure 10 Less Revenue Receipts 7 Revenue Deficit 3 Fiscal Deficit Revenue Exp 10 Capital Exp 2 Total Expenditure 12 Revenue Receipts 7 Capital Receipts(Non Debt) 2 Total Receipts 9 Fiscal Deficit 3 NOTE Borrowings 3 Fiscal deficit 3 Hence fiscal deficit= Borrowings EXAMPLE 5 NCERT Page 71 Revenue Receipts (a + b) 9 Tax Revenue 7.3 Non-Tax Revenue 1.6 Revenue Expenditure 10.9 Out of which Interest Payments 3.1 Major Subsidies 1.4 Defence Expenditure 1 Capital Receipts (a + b +c) 4 Recovery of loans 0.1 Receipts from PSU Disinvestment 0.4 (c) Borrowings 3.2 Capital Expenditure 1.8 ANSWER Revenue Deficit Revenue Expenditure 10.9 Less Revenue Receipts 9 Revenue Deficit 1.9 Fiscal Deficit Revenue Exp 10.9 Capital Exp 1.8 Total Expenditure 12.7 Revenue Receipts 9 Capital Receipts(Non Debt) 0.5 Total Receipts 9.5 Fiscal Deficit 3.2 NOTE BORROWINGS 3.2 FISCAL DEFICIT 3.2 Hence FISCAL DEFICIT=BORRWINGS Why Gross Fiscal Deficit Is Equal to Borrowings Suppose a country wants to make Revenue Expenditure Capital Expenditure Total To Meet this expenditure. Govt has following Receipts Revenue Receipt Capital Receipt (Sale of PSU) Total Receipts 4000 6000 10000 7000 2000 9000 Hence, Govt is short of funds of Rs 1000 So Govt will have to take loan Of Rs 1000 Hence Fiscal Deficit=Borrowings=1000  This is Fiscal Deficit This is Borrowings Formula Derivation  Why Fiscal Deficit=Borrowings To meet all expenses ,Expenditure should be equal to Receipts Expenditure = Receipts Capital Exp + Revenue Exp = Capital Receipts+ Revenue Receipts Capital exp + Revenue Exp = Capital Receipts(non debt) + Capital Receipts(debt) + Revenue Receipts Capital exp + Revenue Exp - Capital Receipts(non debt)- -Revenue Receipts = Capital Receipts (debt) Fiscal Deficit =Capital Receipts (debt) Fiscal Deficit =Borrowings WHY REVENUE DEFICIT IS A PART OF FISCAL DEFICIT? We know that Fiscal Deficit =Revenue Receipts + Capital Receipts (non debt) - Revenue Exp - Capital Expenditure =(Revenue Receipts-Revenue Exp) + Capital Receipts(non debt) – Capital Expenditure =Revenue Deficit + Capital Receipts(non debt) – Capital expenditure Hence, Revenue Deficit is a part of Fiscal Deficit. More the Revenue Deficit, More will be Fiscal Deficit What does Revenue and Fiscal Deficit Indicate Revenue Deficit denotes Excess consumption Exp (Country spending more on day to day expenses) Fiscal Deficit denotes Borrowings (We have already studied Fiscal Deficit=Borrowings) Note Revenue Deficit is a part of Fiscal Deficit If there is large share of Revenue Deficit in Fiscal Deficit It means Excess consumption expenditure has lead to more borrowings Example Effect of increase in Excess Consumption Expenditure on Deficit REVENUE RECEIPTS TAX REVENUE 100 100 NON TAX REVENUE 200 200 TOTAL 300 300 CAPITAL RECEIPTS RECOVERY OF LOANS GIVEN 50 50 FROM SALE OF PSU 250 250 (DISINVESTMENT) FROM BORROWINGS 400 500 TOTAL 700 800 REVENUE EXPENDITURE 600 700 CAPITAL EXPENDITURE 400 400 What is Revenue Deficit and Fiscal Deficit? What happens to these Deficits if Consumption Expenditure Increases by 100? Answer CALCULATION OF REVENUE DEFICIT REVENUE EXPENDITURE 600 700 REVENUE RECEIPTS 300 300 REVENUE DEFICIT 300 400 Calculation of Fiscal Deficit REVENUE EXP 600 700 CAPITAL EXP 400 400 TOTAL EXPENDUTURE 1000 1100 REVENUE RECEIPTS 300 300 CAPITAL RECEIPTS (Non Debt) 300 300 TOTAL RECEJPTS 600 600 FISCAL DEFICIT 400 500 If Revenue Deficit Increases by 100 Fiscal deficit also increases by 100

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