Excluding borrowings, the excess of total expenditure over total receipts signifies which of the following?
Show answer & explanation
Correct answer: A
Explanation
Answer: Fiscal Deficit.
Explanation:
The fiscal deficit is the difference between the government's total income (revenue receipts + non-debt-creating capital receipts) and its total expenditure. In this calculation, borrowings undertaken by the government are not included in the receipts. Simply put, it is the amount that the government needs to borrow from the market to meet its expenses.
Formula: Fiscal Deficit = Total Expenditure - (Revenue Receipts + Non-debt Capital Receipts)
This serves as a crucial indicator of the country's financial health. A high fiscal deficit can fuel inflation and impose a debt burden on the nation.
Additional Points:
Revenue Deficit: Occurs when the government's revenue expenditure exceeds its revenue receipts.
Primary Deficit: The amount obtained by subtracting 'interest payments' from the fiscal deficit.
Inflation: When the government prints new currency notes to finance the fiscal deficit, it can lead to rising prices (inflation) within the economy.
Potential Exam Questions and Answers:
Question: What is the formula for calculating the primary deficit?
Answer: Fiscal Deficit - Interest Payments.
Question: Who sets the fiscal deficit target in India at the time of the budget announcement?
Answer: The Ministry of Finance.