The Government: Budget and the Economy Test - 11

Deficit financing is a budgetary situation where expenditure is higher than the revenue. The expenditure revenue gap is financed either by printing currency notes or through borrowing.

Any deficit in the budget is financed by borrowing both from internal and external sources.

Primary deficit means excess of total expenditure of the government excluding interest payments over sum total of its revenue receipts and non debt capital receipts. Primary deficit is a narrower concept and a part of fiscal deficit.

Budgetary deficit may be financed by deficit financing.  Deficit financing is the level of support extended by Reserve Bank of India to the government's borrowing programmes.  The government borrows from the RBI which in turn issues new currency money .

Deficit budget can be financed through borrowing or by printing more currency. Borrowing can be both from internal and external sources.

Revenue deficit means a situation where total revenue expenditure of the government exceeds its total revenue receipts. Thus

Revenue deficit = Total revenue expenditure - Total revenue receipts

It means the government resorts to borrowing only to clear the existing backlog of interest payments. It is a sign of fiscal discipline or fiscal responsibility on the part of the government.

The government can finance its deficit either by borrowing from the public or from the RBI .

Budgetary deficit may be financed by deficit financing.  Deficit financing is the level of support extended by the RBI to the government's borrowing programmes.  The government borrows from the RBI which in turn issues new currency money.

Tax is a revenue receipt as it does not create any corresponding liability for the governemnt. The tax payer cannot expect any service or benefit from the government in return .