Deficits, Public Debt and the FRBM Act
Chapter Sixty-One
Syllabus topic 3.6, "Public Expenditure- Classification and Causes of growth of Public Expenditure"
Pages 400 to 408 of 556
In one line
A deficit is the gap between what a government spends and what it earns, and which gap you mean depends on which receipts and which expenditure you count.
In the wording a student can write in an exam: the fiscal deficit is the excess of total expenditure over total receipts excluding borrowing, and therefore measures the total borrowing requirement of the Government; the revenue deficit is the excess of revenue expenditure over revenue receipts, and measures borrowing to meet current consumption; the effective revenue deficit is the revenue deficit less grants in aid given for the creation of capital assets; and the primary deficit is the fiscal deficit less interest payments, and measures the imbalance created by the present year's decisions as distinct from the burden of past borrowing.
The four deficits, in the Budget's own words
| Deficit | Definition | What it tells you |
|---|---|---|
| Fiscal deficit | Total expenditure minus total receipts excluding debt capital receipts. It reflects the total borrowing requirement of the Government. | How much the Government must borrow this year |
| Revenue deficit | The excess of revenue expenditure over revenue receipts | How much of that borrowing goes on current consumption, leaving no asset |
| Effective revenue deficit | Revenue deficit minus grants in aid for the creation of capital assets | The revenue deficit after allowing for grants that do build something |
| Primary deficit | Fiscal deficit less interest payments | The imbalance created by this year's decisions, stripped of the burden of past borrowing |
The current figures, Budget Estimates for 2026-27 against the Actuals for 2024-25.
| Deficit | 2026-27 BE, crore rupees | Per cent of GDP | 2024-25 Actuals, per cent of GDP |
|---|---|---|---|
| Fiscal deficit | 16,95,768 | 4.3 | 4.8 |
| Revenue deficit | 5,92,344 | 1.5 | 1.7 |
| Effective revenue deficit | 99,642 | 0.3 | 0.9 |
| Primary deficit | 2,91,796 | 0.7 | 1.4 |
Read the last two rows against the first. The fiscal deficit is 4.3 per cent of gross domestic product but the primary deficit is only 0.7. The difference, 3.6 percentage points, is interest on past borrowing. In other words, almost the whole of the current deficit exists to service debt already incurred: even if this year's Government balanced everything it decided itself, it would still have to borrow heavily to pay the interest bill of 14,03,972 crore rupees left by its predecessors.
How the arithmetic works
Take the receipts and expenditure from the two previous chapters. Total expenditure is 53,47,315 crore rupees. Receipts other than borrowing are revenue receipts of 35,33,150, non debt capital receipts of 1,18,397, and a draw down of cash balances of 32,702.
Fiscal deficit = 53,47,315 minus (35,33,150 + 1,18,397) = 16,95,768 crore rupees.
Note what is not subtracted. Debt receipts of 16,63,066 crore are excluded, because they are the borrowing whose size the deficit measures. Including them would make every budget balance by definition, which is exactly why borrowing is separated from revenue in [The Sources of Public Revenue].
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