Question

What is the meaning of deficit budget? Explain its types briefly.

Hint:

A deficit budget is an indicator of fiscal imbalance, but it can also be used as a tool for stimulating economic growth through increased government spending.

Answer 1

Step 1: Understanding Deficit Budget.
A deficit budget occurs when the government's total expenditures exceed its total revenues in a given period, resulting in a budget deficit. The government borrows funds to cover the gap between its expenditure and revenue.

Step 2: Types of Deficit Budget.
- **Revenue Deficit:** When the government's revenue expenditure exceeds its revenue receipts, it leads to a revenue deficit.
- **Fiscal Deficit:** This is the excess of total expenditure (both revenue and capital) over total receipts (excluding borrowings) in a given fiscal year. It shows the total borrowing requirements of the government.
- **Primary Deficit:** This is the fiscal deficit excluding the interest payments on previous borrowings. It reflects the government's borrowing needs, excluding the cost of servicing past debt.