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    Question

    The term “Fiscal Deficit” which is one of the key indicator of economy mentioned in the Union Budget means

    A The difference between the sum of budgetary deficit and net increase in internal and external borrowings Correct Answer Incorrect Answer
    B The sum of monetized deficit and budgetary deficit Correct Answer Incorrect Answer
    C The difference between current expenditure and current revenue Correct Answer Incorrect Answer
    D Net increase in Union Government borrowings from the RBI Correct Answer Incorrect Answer
    E The difference between capital expenditure and current revenue Correct Answer Incorrect Answer

    Solution

    Following are three types (measures) of deficit:       I.        Revenue deficit = Total revenue expenditure – Total revenue receipts.     II.        Fiscal deficit = Total expenditure – Total receipts excluding borrowings.    III.        Primary deficit = Fiscal deficit-Interest payments. A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits. Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development.  A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds. 

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