The fiscal deficit formula is a key measure of a government’s financial health. It shows how much the government needs to borrow to meet its spending requirements when total expenditure exceeds total revenue, excluding borrowings.
In simple terms, it indicates how much the government’s spending surpasses its income from taxes and other receipts during a financial year.
What is the Fiscal Deficit Formula?
The fiscal deficit formula can be expressed as:
Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings)
Where:
- Total Expenditure = Revenue Expenditure + Capital Expenditure
- Total Receipts = Revenue Receipts + Capital Receipts (excluding borrowings)
This formula helps policymakers, economists and investors understand the extent of government borrowing and its impact on the economy.
Fiscal Deficit Formula with Borrowing
The fiscal deficit formula with borrowing includes the total borrowings made by the government to cover its expenditure gap. It reflects how much debt the government must raise to finance its fiscal shortfall.
Borrowings can be both domestic and external, such as government bonds or loans from international institutions.
Fiscal Deficit Formula with Revenue Deficit
When revenue receipts fall short of revenue expenditure, the shortfall is known as a revenue deficit. The fiscal deficit formula with revenue deficit helps assess whether the fiscal deficit arises mainly from operational imbalances or capital investments.
Formula:
Fiscal Deficit = Revenue Deficit + (Capital Expenditure – Non-Debt Capital Receipts)
Primary Deficit Formula
The primary deficit is used to calculate the fiscal deficit excluding interest payments on previous borrowings.
Formula: Primary Deficit = Fiscal Deficit – Interest Payments
Suppose a government’s total expenditure is ₹50 lakh crore and its total receipts (excluding borrowings) are ₹40 lakh crore.
Using the fiscal deficit formula,
Fiscal Deficit = ₹50 lakh crore – ₹40 lakh crore = ₹10 lakh crore.
This means the government needs to borrow ₹10 lakh crore to meet its expenses.In summary, the fiscal deficit formula is an essential indicator for evaluating government spending and the overall economic balance of a nation.
