Glossary term
Revenue Deficit: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
The revenue deficit is the amount by which the government’s revenue expenditure exceeds its revenue receipts. It shows that the government’s earnings from taxes and other revenue do not cover its day-to-day spending, such as salaries, interest and subsidies, so it must borrow to meet current needs.
In more detail
A revenue deficit is more worrying than a deficit caused by capital spending, because borrowing to pay for salaries and subsidies leaves no asset behind to earn future income. The debt remains but nothing is created. Borrowing for roads or hospitals, in contrast, can pay for itself over time. The revenue deficit is part of the fiscal deficit.
Example
If revenue receipts are ₹30 lakh crore and revenue expenditure is ₹36 lakh crore, the revenue deficit is ₹6 lakh crore.
Key points
- Revenue deficit = revenue expenditure − revenue receipts.
- It means borrowing for consumption, which creates no asset.
- It is smaller than the fiscal deficit when the capital account is in deficit too.
Common mistake
Treating a revenue deficit and a fiscal deficit as the same.
Related terms
Where it is explained
This term is explained in Class 12 Macroeconomics Chapter 5: The Government, Functions and Scope.