The excess of total expenditure of Government over its total receipts, excluding borrowings, is known as
Fiscal deficit
Understanding Government Fiscal Deficit
The question asks for the specific term that describes the situation when the government's total spending exceeds its total income, but without counting the money it borrows as income.
Let's break down the key components mentioned in the question:
- Total Expenditure of Government: This includes all the money the government spends, both on day-to-day running (revenue expenditure) and on creating assets (capital expenditure).
- Total Receipts of Government: This includes all the money the government earns, like taxes, fees, disinvestment proceeds, etc. It does NOT include money borrowed.
The difference between these two figures, when expenditure is higher than receipts (excluding borrowings), shows how much the government needs to borrow to meet its spending needs.
Let's look at the options provided:
- Primary deficit: Primary deficit is calculated as Fiscal Deficit minus interest payments on previous borrowings. So, this is not the definition given.
- Fiscal deficit: This is defined precisely as the excess of total expenditure over total receipts, excluding borrowings. This matches the description in the question. It indicates the total borrowing requirement of the government.
- Current deficit: This term is not a standard measure of overall government deficit in this context. It might refer to a deficit in a specific account, but not the overall picture described.
- Capital deficit: This would relate to the difference between capital expenditure and capital receipts, not the total expenditure and total receipts.
Based on these definitions, the term that fits the description provided in the question is Fiscal Deficit.
The formula can be expressed as:
\(\text{Fiscal Deficit} = \text{Total Government Expenditure} - \text{Total Government Receipts (excluding borrowings)}\)
This deficit is typically financed through borrowings (internal and external) and drawing down cash balances.
Revision Table: Government Deficit Concepts
| Deficit Type | Calculation | Significance |
|---|---|---|
| Revenue Deficit | Total Revenue Expenditure - Total Revenue Receipts | Indicates government's dissaving on current account. |
| Fiscal Deficit | Total Expenditure - (Revenue Receipts + Non-debt Capital Receipts) | Total borrowing requirement of the government. |
| Primary Deficit | Fiscal Deficit - Interest Payments | Indicates borrowing requirement excluding interest on past debt. |
Additional Information on Government Deficits
Understanding different types of government deficits is crucial in public finance and economics. They provide insights into the government's financial health and fiscal policy stance.
- Budget Deficit: Historically, this referred to the difference between total expenditure and total receipts (including borrowings). However, in India, Fiscal Deficit is now the more commonly used and significant measure of deficit.
- Revenue Deficit: A high revenue deficit means the government is borrowing just to meet its day-to-day running expenses, which is generally considered unsustainable in the long run as it adds to future debt burden without creating assets.
- Fiscal Deficit and Borrowing: The fiscal deficit figure directly represents the amount of money the government needs to borrow from the market or other sources in a given fiscal year.
- Impact of Fiscal Deficit: A large fiscal deficit can lead to increased government debt, higher interest payments, inflation, and potential crowding out of private investment.
Therefore, managing the fiscal deficit is a key objective of government fiscal policy.
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