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Meaning and Difference between Budget and Fiscal Deficit with Examples?

The government, every year prepares budget which shows the expected receipts and expenditures of the government in the coming financial year.  Receipts of the government come form taxes (both direct and indirect taxes), profits from various financial institutions, government commercial undertakings, interest from loans given to other governments, local bodies, etc and expenditure of the government are on developmental projects such as construction of roads, railways, production of energy and non-developmental expenditure on a large number of activities such as defence, subsidies, police, law and order etc.

If receipts are equal to expenditure, the budget is said to balanced one.
If receipts are higher than the expenditure the budget is said to be surplus one, and
If receipts are lower then the expenditure, the budget is said to be deficit one.

The estimates included in the budget are simply estimates; the actual may not conform to the original estimates.  The budget must, however, estimate revenues and expenditures as accurately as possible.  Accuracy becomes essential if equilibrium established in the estimates is to be maintained to the end and realised in actual.

The Budget comprises data for three years;
a) Actual Figures for the Preceding Year;
b) Budget estimates for the Current Year;
c) Revised estimates for the Current Year, and
d) Budget estimates for the Following Year.

What is Budget Deficit and Fiscal Deficit?
Budget deficit = Total Receipt - Total Expenditure.

Fiscal Deficit:
a) the difference between total expenditure and total revenue receipts and capital receipts but excluding borrowings and other liabilities, or
b)  it is the Sum of Budget deficit plus Borrowings and other Liabilities.

Budget deficit is the difference between total receipts and total expenditure. If borrowings and other liabilities are added to budget deficit, we get Fiscal deficits. Since budget does not show the true pictures of government liabilities and hence a true picture of the financial health of the economy, the practice of showing budget deficit is not in use, Budgets now show fiscal deficits to show the overall shortfalls in the public revenues, Over the years fiscal deficits have grown rapidly and have become the cause of concern.  To meet the challenge, many reforms have been carried out but still the problem of high fiscal deficit remains.

Example showing Calculation of Budget Deficit and Fiscal Deficit.
                                                                                                        In Crores.
1. Revenue Receipts                                                                           3,50,200
2. Capital Receipts of which                                                              1,63, 144
     a) Loan recoveries + other receipts                                               12,000 
     b) Borrowings & Other liabilities                                                   1,51,144
3. Total Receipts (1 +2)                                                                     5,14,344
4. Revenue Expenditure                                                                     1,14,982
5. Capital Expenditure                                                                          67,832
6. Total Expenditure (4+5)                                                                 5,14,344
7. Budgetary Deficit (3-6)                                                                       NIL
8. Fiscal Deficit [1+2(a) - 6 = 7 + 2 (b)]                                            1,50,144

Budget Deficit: $5,14,344 Crores - $5,14,344 Crores = Nil

15 comments:

  1. Very good explanation

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  2. Very nicely explained. thank you very much.

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  3. loved it... wonderfully written...

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  4. Numbers do not add up properly...

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  5. thank you so much...very well explained :)

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  6. I think calculations are done in others way around for both terma

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  7. Thanks blog, explanation is quite clear but there are some errors in calculation, kindly correct it...

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  8. very good explaination...thanks a lot

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  9. really good thanks.

    please not the change:

    7 + 2 (b) = NIL + 1,51,144
    = 1,51,144

    so the fiscal deficit should be 1,51,144. in simple terms, if you have having a balanced budget, then the fiscal deficit is equal to the borrowings, which in this case is 1,51,144.

    Thanks a lot.

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  10. beautiful explanation..... really nice understanding

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  11. very useful and easy to understand. thank u so much...

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  12. yes, i agree with mr/ms. Anonymous the fiscal deficit should be 151144, provided if aforesaid explanation is correct.

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  13. naveen kumar, research scholar mdu rohtakMarch 12, 2014 at 12:24 AM

    wow what a explanation thank you very much

    ReplyDelete

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