Budget Glossary #5: What Is The Revenue Deficit?

The revenue deficit is a key deficit statistic that is measured by the central government while releasing the Union Budget. It measures a shortfall on the revenue side of budget, namely representing the excess of the government's revenue expenditure over the revenue income.

The revenue budget is one of the two heads under which revised and budgeted expenses of the Union Budget are presented. The other is the capital budget.

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For the financial year, 2021 - 2022, which is ongoing and ends on March 31, 2022, the revenue deficit is ₹11,40,576 crores. This can be derived by substracting the government's budgeted revenue receipts (₹17,88,424 crore). from the budgeted revenue expenditure (worth ₹29,29,000 crore). These numbers can be found here.

Like the fiscal deficit, the revenue deficit is also expressed as a percentage of gross domestic product (GDP). For the ongoing year, the revenue deficit is budgeted to be 5.1% of GDP. Only that the fiscal deficit measures the excess of government expenditure over non-borrowed receipts, while the revenue deficit measures the revenue side of the budget.

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However, both have converging implications. Borrowings to plug both of these deficits impose an opportunity cost, as this capital could be used elsewhere to lend and invest in more productive sectors. The government also can meet these deficits by selling assets, or by raising taxes.

A terms similar to the revenue deficit is called the 'effective revenue deficit', which is the revenue deficit minus the grants that created capital assets. The idea behind the effective revenue deficit is to do away with revenue expenditure that goes into the creation of assets of productive value, and thus leaving only "non-productive" expenditure.