| Definition |
It is the shortfall between the government's total expenditure and total receipts (excluding borrowings). |
It is the excess of the government's revenue expenditure over its revenue receipts. |
| Formula |
Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts) |
Revenue Deficit = Revenue Expenditure – Revenue Receipts |
| Coverage |
Includes both revenue and capital components of the budget. |
Includes only the revenue components of the budget. |
| Significance |
Indicates the total borrowing requirement of the government. |
Shows if the government is dissaving or not generating enough income to meet its regular expenses. |
| Impact |
Leads to increased borrowings and interest payments, affecting long-term debt sustainability. |
Reflects structural imbalance; indicates that borrowings are being used to meet current consumption. |
| Nature of Expenditure |
Can be due to both capital (like infrastructure) and revenue expenditures. |
Only due to revenue expenditure like salaries, subsidies, interest payments, etc. |
| Positive Aspect |
If used for productive capital expenditure, it can lead to economic growth. |
Generally considered negative as it implies consumption-driven borrowing. |
| Government Action |
May justify if used for development, but needs control to maintain fiscal discipline. |
Calls for immediate correction by reducing unproductive expenses or improving tax revenues. |
| Use in Budget |
A key metric in assessing overall fiscal health and borrowing requirement. |
Used to assess sustainability of government’s regular operations and financial discipline. |
| Relation |
Always includes revenue deficit, if any, plus capital account imbalances. |
May or may not exist even if there is a fiscal deficit. |
| Indicator of Investment |
If fiscal deficit is due to capital spending, it may indicate investment in future growth. |
Indicates a lack of fiscal discipline with no direct contribution to asset creation. |
| Example Scenario |
If the government spends heavily on roads, defense, and social schemes funded by borrowing. |
If the government spends more on salaries and subsidies than it earns from taxes and other revenue. |
| Macroeconomic Effect |
May increase inflation, interest rates, and public debt if uncontrolled. |
Reduces the ability of the government to invest in capital projects and future growth. |
| Summary |
Fiscal deficit is a broader indicator of government’s financial shortfall and borrowing needs. |
Revenue deficit is a narrower indicator showing inefficiency in managing current expenditure vs income. |
Fiscal Deficit vs Revenue Deficit