Budget: What are the different types of deficit and how they impact economy

NEW DELHI: Budget deficit occurs when expenditures exceed revenues received. It is usually expressed as a percentage of gross domestic product (GDP). A deficit may arise in case government spends more during a year either due to unanticipated events like a disaster or calamity or introduces certain policy changes to spur economic activities. High deficits may sometimes lead to inflationary pressures in the economy. An effective way to reduce them is to reduce regulations, lower corporate taxes and improve business confidence. Here are the different types of budget deficit: * Revenue deficitWhen total revenue expenditure exceeds total revenue receipts it leads to revenue deficit. It indicates shortage of funds with the government even for maintaining its day-to-day affairs. Government often resorts to borrowing or divestment to cover up the shortage. It may also introduce new taxes or increase the existing taxes.The Centre is likely to incur a high revenue deficit this year again owing to increased spending due to the coronavirus pandemic.* Fiscal deficit Fiscal deficit is the negative balance that arises whenever a government spends more money than it receives in the form of taxes and other revenues. The number is one of the most keenly observed figures during the Budget. It assumes significance especially now as the ongoing Covid-19 pandemic has necessitated the government to undertake many measures to uplift a sluggish economy. During April-November, the first eight months of current fiscal year, fiscal deficit narrowed to 46.2 per cent of the full-year budgeted target, helped by a rise in tax collections.The fiscal deficit had surged to 135.1 per cent of the full-year target during the same period last fiscal year. It stood at Rs 6.96 lakh crore ($93.7 billion) against Rs 15.07 lakh crore target for the whole fiscal year.* Primary deficitPrimary deficit is arrived at by deducting interest payments on previous borrowings from the current year's fiscal deficit. In other words, it is the amount of government borrowing excluding interest payments. A zero primary deficit indicates the need for government borrowing to meet interest payments. A shrinking primary deficit indicates improving fiscal health of an economy.