Consider the following:

1. Fiscal Deficit

2. Revenue Deficit

3. Primary Deficit

Which of the following deficit(s) focuses only on the present fiscal imbalances?

Solution

● Statement 1 is Incorrect: Fiscal deficit indicates the total borrowing of the government from all sources i.e. domestic borrowing plus borrowing from external sources. However, a large part of the government's fiscal deficit is the interest paid on its previous accumulated debt. Fiscal Deficit = Total expenditure - total receipts except borrowing ● Statement 2 is Incorrect: Revenue Deficit is the difference between the government's revenue expenditure and revenue receipts. Revenue Deficit = Revenue Expenditure - Revenue Receipts Revenue Deficit implies that the government's current expenses are more than its current revenues and will have to use up the savings of other sectors of the economy to finance its consumption expenditure. However, even in the case of revenue deficit, a major part goes for the payment of salaries, pensions, interest payments on previously accumulated debt, subsidies which is a committed expenditure. ● Statement 3 is Correct: The government's deficit excluding the interest payment on the previously accumulated debt is called the primary deficit. It was introduced with the goal of measuring the present fiscal imbalances. Primary Deficit = Fiscal Deficit - Net interest liabilities