What are Budgetary Deficit?
We have already studied that
Budgetary Deficit is excess of Expenditure over Receipts
Example
Revenue Deficit, Fiscal Deficit, Primary Deficit
How are Budgetary Deficit Financed
To fill the gap between Expenditure and Receipts, Government normally does one of the following
Taxation
Govt increases its Taxes (This increases Govt Receipts)
Borrowing (Debt)
Govt takes loans from Public or Foreign Institutions
This increases its debt and int liability
Printing Money
Govt asks RBI to print money
When Govt wants to print a currency, it gives securities to the RBI (called Govt Security) against which RBI issues currency
Which of above 3 methods is mostly used by Govt?
Borrowing Method is mainly used by Govt
Govt increases its debt by raising bonds on which it has to pay interest
If govt continues to borrow every year, it has to pay more and more interest on it
To Pay this int, govt has to take more loan and this circle continues
NCERT Question
Question 11
Explain the relation between government deficit and government debt.
View answer
Relation between Government deficit and Government debt:
-
Government deficit refers to the excess of Government Expenditure over Government Receipt
Government debt refers to the loans that Government take from Public or Foreign Institutions.
-
In order to finance the deficit, government increases debt
Govt increases its debt by raising bonds on which it has to pay interest
If govt continues to borrow every year, it has to pay more and more interest on it
To Pay this int, govt has to take more loan and this circle continues
Other Books
Question 1
In the following questions, select the correct answers:
Budget deficit means:
- Total Expenditure - Total Receipts
- Capital Expenditure - Capital Receipts
- Total Expenditure - Total Receipts (excluding borrowings)
- Total Expenditure - Revenue receipts
View answer
A. Total Expenditure - Total Receipts
Explanation
Budgetary Deficit is excess of Expenditure over Receipts