Concept of Revenue Deficit

Concept of Revenue Deficit

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The government's total revenue expenditures are greater than its total revenue receipts, resulting in a revenue deficit. It only pertains to the government's revenue expenditures and revenue receipts. Alternately, revenue deficit is the difference between total revenue received and total revenue spent. A revenue deficit indicates that the government's own earnings are insufficient to support the normal operations of its departments and the provision of services. The deficit in revenue results in borrowing. Simply put, a revenue deficit occurs whenever the government expends more money than it receives in revenue. Keep in mind that only transactions that affect the government's current income and expenditures are included in the revenue deficit.

According to the summary of the budget found in Section 9.18, the revenue deficit in the government budget estimates for the year 2012-13 is Rs 3,50,424 crore (= revenue expenditure of Rs 12,86,109 crore – revenue receipts of 9,35,685 crore). It demonstrates the government's inability to fully cover its revenue expenditures from revenue receipts. capital receipts - that is, borrowing money and selling assets—are the means by which the deficit will be filled. A higher revenue deficit is worse than a lower deficit given the same level of fiscal deficit because it implies a higher repayment burden in the future that is unmatched by investment benefits. To put it simply, a revenue deficit is spending more than is necessary. As a result, borrowing occurs. Interest is paid back on loans. As a result, spending on revenue rises thereby, increasing the deficit.

The following are the primary effects of the government's revenue deficit:

1. Decrease in assets - The term "revenue deficit" refers to a government's inability to save money because the government must borrow money or sell assets to make up the shortfall (disinvestment).

2. Situation of inflation - The government typically uses borrowed funds from the capital account to cover its general consumption expenses, which results in an inflationary economy and all of its problems. As a result, a revenue shortfall could lead to either a decrease in government assets or an increase in government liabilities. Keep in mind that a revenue deficit indicates a future repatriation burden without the benefits of investment.

3. A larger revenue shortfall - Due to repayment obligations and interest payments, significant borrowing to address the deficit in revenue will increase debt burden. In the future, this may result in increasing revenue deficits.

Corrective Measures:

The government should either reduce its expenditures or increase its tax and non-tax receipts in response to a high revenue deficit. As a result, the most common solutions are:

1.Any new taxes and the tax rate should be increased whenever possible by the government, particularly for the wealthy.

2.The government should try to cut costs and avoid spending money it doesn't need to.