Fiscal Deficit

The fiscal deficit is the gap between the Union government's total expenditure and its receipts other than borrowings. It measures the government's annual financing gap, showing how much expenditure cannot be met from revenue and non-debt capital receipts.

Calculation and meaning

Fiscal deficit equals total expenditure minus the sum of revenue receipts and non-debt capital receipts. Borrowings are excluded from receipts because including them would conceal the financing gap.

• A larger fiscal deficit indicates a larger requirement for debt-creating finance, unless the government increases non-debt receipts or reduces expenditure.
• Expressing the deficit as a percentage of GDP helps compare its scale across years.

Link with government borrowing

Fiscal deficit broadly reflects the government's overall borrowing requirement for the financial year. It is financed through market loans, securities issued against small savings, external loans and other liabilities; changes in cash balances may also contribute.

• Fiscal deficit is not identical to gross market borrowing, because gross borrowing may also include funds raised to repay maturing market debt.
• It represents the overall net financing gap, while the precise mix of financing instruments can change from year to year.

What the indicator does not reveal

Fiscal deficit alone does not show the quality of expenditure or whether borrowing finances productive capital assets or current consumption.

• The primary deficit, calculated by subtracting interest payments from the fiscal deficit, indicates the current fiscal gap after excluding the burden of past debt.
• Fiscal deficit is a yearly flow and should not be confused with the outstanding stock of public debt.