Glossary term
Fiscal Deficit: Meaning, Formula and Example
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
The fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing, that is, revenue receipts plus non-debt creating capital receipts such as loan recoveries and disinvestment. It equals the government's total borrowing requirement for the year.
In more detail
The fiscal deficit is the amount the government must borrow in a year. It is total expenditure minus all receipts other than borrowing. Persistent deficits add to public debt and the interest burden, but borrowing for productive investment can raise future income. Economists therefore look at what the borrowing finances, not only its size.
Example
If total expenditure is ₹45,000 crore, revenue receipts are ₹30,000 crore and non-debt capital receipts are ₹2,000 crore, the fiscal deficit is 45,000 − 32,000 = ₹13,000 crore, which must be borrowed.
Key points
- Primary deficit = fiscal deficit − interest payments.
- It is financed by borrowing at home, from the RBI and from abroad.
- India's FRBM Act, 2003 set targets to reduce it.
Common mistake
Confusing it with the revenue deficit, which compares only revenue spending with revenue receipts.
Related terms
MultiplierGross domestic product
Where it is explained
Measures of deficit are explained in Class 12 Macroeconomics Chapter 5: The Government: Functions and Scope.