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Merits and Demerits of Revenue Deficit
Merits and Demerits of Revenue Deficit
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
Revenue Deficit is the difference when the government’s total revenue expenditure exceeds the total revenue receipts and the net income is less than the net expenditure. Transactions that directly affect the government’s existing earnings and expenses come under the revenue deficit. In this article, we will study about revenue deficit which is important for UPSC examination.
When the government’s total revenue expenditure is more than its total revenue receipts it means a Revenue Deficit. A revenue deficit arises when the actual net income is less than the expected net income. This happens when the said amount of revenue and the said amount of expenditures do not comply with budgeted revenue and expenses. A revenue deficit indicates the scarceness of fluid assets with the government to withhold its day-to-day affairs and unctions and is only related to revenue expenditure and revenue receipts of the government. It can be calculated by the following simple formula:
Revenue deficit = Revenue expenditure – Revenue receipts
Advantages of Revenue Deficit
If the revenue deficit is updated at a particular level with rare violations it will be helpful in the effective administration of the economy. During a downtrend in the economy, when the private industry does not initiate investing due to low demand, public expenditure may introduce the necessary demand. The said policy of revenue deficit (fiscal policy) pertains to the use of taxation, public borrowings, and public expenses as a form of stability mechanism and development of the economy and is adopted by the monetary authority to comply with similar goals with the control of financial institutions, demand, and supply of financial assets, sustaining the formation of interest rate. When the Revenue deficit increases with increased expenditure on bail-out packages during the financial crisis, it can be beneficial.
Disadvantages of Revenue Deficit
The high revenue deficit means the interest payments in the coming years will be higher. Paying higher interest means more expenses for which the government will have to borrow more capital to fulfill the rising public expenditure. A revenue deficit can affect the credit rating of a government or business in a resentful manner if not amended timely. This is because continuously running a deficit could indicate that the government is facing problems meeting its existing and upcoming obligations.