Definition
Revenue Deficit
The revenue deficit is the excess of the government's revenue expenditure over its revenue receipts, indicating that day-to-day running costs are being met partly through borrowing.
Revenue receipts (taxes, dividends, fees) are meant to cover revenue expenditure (salaries, pensions, interest, subsidies). When they fall short, the gap is the revenue deficit. A high revenue deficit is considered poor-quality fiscal management because borrowing is funding consumption rather than asset creation.
Under the FRBM Act, India once aimed to eliminate the revenue deficit entirely, though that target has been repeatedly deferred. A large revenue deficit within the overall fiscal deficit means relatively little of the borrowed money is going into roads, railways or other durable capital expenditure.
Related terms
- Effective Revenue DeficitThe effective revenue deficit is the revenue deficit reduced by grants given to states and other bodies that are actually used to create capital assets.
- Revenue vs Capital ExpenditureRevenue expenditure covers the government's recurring running costs, while capital expenditure creates lasting assets or reduces liabilities.
- Fiscal DeficitThe fiscal deficit is the gap between the government's total spending and its total revenue, showing how much it must borrow in a year.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.