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Various Indicators of Deficit in the Budget

 

budget is a financial plan for a defined period of time, usually a year. In India, it is for a year. This plan includes approximate costs, revenues during a specific period and reflects future financial conditions. It is essential for managing spending, avoiding debts and properly allocating resources.

The Union Budget of India is also referred to as the Annual financial statement in the Article 112 of the Constitution of India.

Some Important Facts:

  • The Government presents it on the first day of February so that it could be materialized before the commencement of new financial year in April. Till 2016 it was presented on the last working day of February by the Finance Minister of India in Parliament.
  • The Railway Budget was presented every year, a few days before the Union budget of India, till 2016. The Government on 21 September 2016 approved merger of the Rail and General budgets from next year, ending a 92-year-old practice of a separate budget for the nation’s largest transporter.
  • Finance Minister is the head of the budget making committee. The budget is prepared by the Budget Division Department of Economic Affairs of the Ministry of Finance annually.
  • The first budget of India was submitted on 18 February, 1869 by James Wilson.  
  • The first Union budget of independent India was presented by R. K. Shanmukham Chetty on November 26, 1947.
  • As of September 2017, Morarji Desai has presented 10 budgets which is the highest followed by P Chidambaram’s 9 and Pranab Mukherjee’s 8. Present finance Minsiter Arun Jaitley has presented 4 budgets will now.

Various Indicators of Deficit in the Budget

There can be different types of deficit in a budget depending upon the types of receipts and expenditure. These are:

Budget Deficit
A budget deficit occurs whenever a government spends more than it makes, which is nearly every year. In India, there is no budget deficit at present.
* Budget deficit = Total expenditure – Total receipts

Revenue Deficit
Revenue is the amount of money that a company actually receives during a specific period, usually from the sale of goods and services to customers. So Revenue deficit is excess of total revenue expenditure of the government over its total revenue receipts.
* Revenue deficit = Revenue expenditure – Revenue receipts
Revenue deficit signifies that government’s own earning is insufficient to meet normal functioning of government departments and provision of services. So it leads to borrowing and sale of its assets. 

Fiscal Deficit
A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings. It is an indication of the total borrowings needed by the government.
* Fiscal deficit = Total expenditure – Total receipts excluding borrowings = Borrowings
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.

Primary Deficit
Primary Deficit that shows the difference between fiscal deficit and interest payments on previous borrowings.
* Primary Deficit = Fiscal deficit – interest payments
Primary Deficit shows how much the government has to borrow in the current period to pay interest on borrowings of previous period.

Effective Revenue Deficit
Effective revenue deficit is defined as the difference between the revenue deficit and the grants for creation of capital assets.
* Effective revenue Deficit = Revenue Deficit – grants for the creation of capital assets
Grants for creation of capital assets are defined as “the grants-in-aid given by the Central Government to the State Governments, constitutional authorities or bodies, autonomous bodies and other scheme implementing agencies for creation of capital assets which are owned by the said entities”, like grants given under MGNREGA , PM Gram Sadak Yojana, etc.

Monetized Fiscal Deficit
Monetized Fiscal Deficit is that part of the fiscal deficit which is covered by borrowing from the Reserve Bank of India (RBI). Now, this is not followed in India, so there is no monetized fiscal deficit in India.

 

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