REVENUE AND FISCAL

DEFICIT

(THE ANALYSIS)
Conducted by
Aneesh Mohan
Jai Jimmy.K
Philip Koshy
What is Deficit?

 Deficit
A situation in which liabilities exceed
assets, expenditures exceed income,
imports exceed exports, or losses
exceed profits.
Fiscal Deficit
What exactly is the Fiscal Deficit?

According to Mr. Jyotirmoy Bhattacharya,a renowned

Indian Economist,the fiscal deficit is the difference
between the government's total expenditure and its
total receipts (excluding borrowing). The elements of
the fiscal deficit are (a) the revenue deficit, which is
the difference between the government’s current (or
revenue) expenditure and total current receipts (that
is, excluding borrowing) and (b) capital expenditure.
The fiscal deficit can be financed by borrowing from
the Reserve Bank of India (which is also called deficit
financing or money creation) and market borrowing
(from the money market, that is mainly from banks).
 
 Revenue Deficit
What do you mean by Revenue Deficit?
When the net amount received (revenues less
expenditures) falls short of the projected net
amount to be received. This occurs when the
actual amount of revenue received and/or the
actual amount of expenditures do not
correspond with predicted revenue and
expenditure figures. This is the opposite of a
revenue surplus, which occurs when the actual
amount exceeds the projected amount
 Revenue &Fiscal Deficit at a Glance

2004-05 2005-06 2005-06 2006-07 2007-08

Actuals Budget Revised Budget Budget
Estimates Estimates Estimates Estimates
Revenue 78338 95312 91821 84727 71428
Deficit (2.5) (2.7) (2.6) (2.1) (1.5)

Fiscal 125202 151144 146175 148626 150984

Budget (4.0) (4.3) (4.1) (3.8) (3.3)

in crores of rupees
A short guide to India’s
Public finances for 2007-08
 The FRBMA mandates the central
government (centre) to reduce its fiscal
deficit to 3% of GDP and to completely
eliminate the revenue deficit (the difference
between current expenditures and
revenues) by 2008-2009. Similarly, 24 of the
29 states have also enacted similar
obligations - fiscal deficits of 3% of GDP and
zero revenue deficit by 2008-2009
A short guide to India’s
Public finances for 2007-08
 The centre and states are well on their way
to fulfilling their FRBMA targets on fiscal
deficits. For 2006-2007, we expect the fiscal
deficit at the centre to be 3.3% which is a
remarkable over-performance on the budget
estimate of 3.8%. The zero revenue deficit
target however, seems a long way away, as
we expect the revenue deficit (RD) to be
about 2%.
 STATE LEVEL

At the state level, the picture is

encouraging as deficits have gradually
come down. This year, the combined
deficit will be lower than that mandated by
the FRBMA. Thus, the states have met
their target a full 2 years earlier than
envisaged. Our key concern is not the
overall deficit but the abysmal provision of
public services, especially in the social
sectors health and education
Though declining, the consolidated fiscal deficit
in India remains high by international standards.
Indeed, the actual deficit is higher than
acknowledged due to some liabilities of the
government which are not treated as debt in the
budget numbers, the most important of which
are oil bonds which add a further 0.7% of GDP
to the deficit. Thus, the government remains a
big borrower in domestic markets, impacting
significantly on aggregated demand and interest
rates.
THANK YOU