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Deficit financing may by analysed in the form of revenue deficit and budgetary deficit. Revenue deficit indicates deficit in the current revenue account and budgetary deficit shows the gap between total expenditure and total receipts (both revenue and capital).
In India, a large deficit in the capital account is mostly responsible for budgetary deficits in India. This budgetary deficit is known as deficit financing in India. This sort of deficit financing has been increasing the money supply with the public, generating money income and raising the level of prices in the country.
The Government of India is resorting to deficit financing in order to finance its development expenditure under Five Year Plans. In recent year, another concept of deficit is adopted by the government which is known as fiscal deficit. The fiscal deficit, indicates budgetary deficit plus borrowing and other liabilities.
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Thus these various concepts of deficit can be clarified in the following manner:
Revenue Deficit = Current revenue expenditure (non plan + plan expenditure) – Current Revenue receipts (net tax revenue + non tax revenue).
Budgetary Deficit = Total expenditure (revenue + capital) – Total receipts (revenue + capital)
Fiscal Deficit = Revenue Receipts (Net tax revenue + non-tax revenue) + Capital Receipts (only recoveries of loan and other receipts) – Total Expenditure (Plan and non-plan expenditure).
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Table 17.5 shows the process of calculation and the amount of these deficits in India in recent years.
Total amount of fiscal deficit in India increased from Rs 44,650 crore in 1990-91 to 66,733 crore in 1996- 97 and in 2014-15, the fiscal deficit was to the tune of Rs 5,31,177 crore. At present the Government is trying to contain the deficit in the budget in order to restore fiscal discipline and to control inflation.
Accordingly, the budgetary deficit is reduced from Rs 11,350 crore in 1990-91 to zero level in 2014-15. Similarly, the fiscal deficit as per cent of GDP reduced from 6.6 per cent in 1990-91 to 5.7 per cent in 1992-93 and then rose to 7.4 per cent in 1993-94 and then declined to 2.6 per cent in 2007-2008 but it again increased to 4.1 per cent in 2014-15 as a result of global recession.
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The following table shows all the important indicators of fiscal imbalance since 1975-76. Table 17.5 reveals that since 1975-76 all different forms of deficits, budgetary deficit, revenue deficit, fiscal deficit monetized deficit and primary deficit increased significantly and reached the maximum level in 1990-91.
In order to bring the economy to the right track the government of India has become successful to reduce these deficits in 2007-2008 budget proposals. But due to global recession these deficit, again increased during 2008-09, 2009-10, 2010-11 and 2014-15.
In order to contain such increasing volume of fiscal deficit, the Government has undertaken some measures. Accordingly, the revised estimates of fiscal deficit show that it has been contained to 4.1 per cent of GDP in 2014-15 as targeted in the budget.
The steady growth of Government expenditure, particularly non-plan expenditures has been considered as the main factor responsible for the country, falling into a fiscal crisis. A significant element of this deficit is the growth in interest payments, which is an efficient system, would have been fully covered by returns on productive capital expenditure and investment financed by debt.
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But in India, plan expenditure has been characterised by low returns from investment and inefficiency. This has been resulting in wastage of scarce resources. The decreasing share of plan expenditure going for capital expenditure has compounded the problem more seriously.
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