Budget 2010-11 : Revenue Deficit

The following table which has been taken from the Budget Documents of 2010-11 presents budget at a glance.

Revenue Deficit:
The above table shows that in 2010-10 Budget estimates of the government, Revenue deficit is of Rs. 276412 crores which is 4% of the GDP.
What is Revenue Deficit?
Revenue deficit represents the difference between the total of revenue expenditure (Both plan and nonplan) over the receipts on the revenue account.

• In the above table it is evident that Govt. estimated the plan expenditure on revenue account is Rs. 315125 Crores and Non plan expenditure on revenue account is Rs. 643599 Crore Rupees. This totals to Rs. 958724 Crores. In lieu of these expenditures, Government of India’s receipts on revenue account is Rs. 682212 Crores. So there is a difference of Rs. 276512 Crores.

Note: Revenue deficit is opposite to Revenue Surplus. In a condition of revenue deficit, the amount of expenditure of the government (on various programmes) is more than the amount of projected received revenue. 

For example suppose I have Rs. 100 in my pocket. I project that I will spend Rs. 75 on a project and thus will make a revenue of Rs. 25. But in actual scene, my plan translates into actual revenue of Rs. 90 and I spend Rs. 70 on that project. So, my projected revenue fell short by Rs. 5 which I budgeted before spending. This is a situation of revenue deficit.

• What does the Revenue Deficit show?

Revenue deficit shows the excess of the government's total revenue expenditure (largely on non-asset creating schemes, subsidies, salaries and pensions) over its tax and non-tax revenues.

• What does the Revenue Deficit Signify?

This difference signifies the hurdles and problems of the government in managing the economy.
On one side, it is a duty of the government to spend on development programmes of the country, but on the other side there is always a time lag between the spending and in returns. Govt. can not charge the people first and then spend. Besides high expenditures on Government programmes and subsidies don’t provide any returns to the government as such (this means tangible returns, of course there are intangible returns of Govt. Expenditure).
Now lets discuss in some more detail: 

The following Graphic shows India’s Revenue Deficit for last few years:

The above graphic shows that in 2009-10 the projected Revenue deficit was 4.8 % which grew up to 5.3% in the revised estimated.

• The 13th Finance Commission had recommended revenue deficits of 2.3 per cent and 1.2 per cent of GDP for 2011-12 and 2012-13, respectively.
• We can see that Finance Ministry has tried to fine tune its policy by bringing down the revenue deficit to 4%.
• However the finance ministry's medium-term fiscal policy statement indicates that the revenue deficit for these years would come down to only 3.4 per cent and 2.7 per cent in this period.

Definitely bringing down the revenue deficits to the level of the recommendations of the 13th Finance Commission is a challenging task.