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FISCAL DEFICIT
The difference between total revenue and total expenditure

of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

FISCAL DEFICIT AND PRIMARY DEFICIT

Primary deficit is one of the parts of fiscal

deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by deducting interest payment from fiscal deficit. Interest payment is the payment that a government makes on its borrowings to the creditors.

REVENUE DEFICIT
A mismatch in the expected revenue and expenditure can

result in revenue deficit. Revenue deficit arises when the governments actual net receipts is lower than the projected receipts. On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus. A revenue deficit does not mean actual loss of revenue Eg, if a country expects a revenue receipt of Rs 100 and expenditure worth Rs 75, it can result in net revenue of Rs 25. But the actual revenue of Rs 90 is realised and expenditure is Rs 70. This translates into net revenue of Rs 20, which is Rs 5 lesser than the budgeted net revenue and called as revenue deficit.

COMPONENTS OF FISCAL DEFICIT

The primary component of fiscal deficit includes revenue deficit

and capital expenditure.

Revenue deficit: It is an economic phenomenon, where the net amount received fails to meet the predicted net amount to be received.
Capital expenditure: It is the fund used by an establishment to produce physical assets like property, equipments or industrial buildings. Capital expenditure is made by the establishment to consistently maintain the operational activities.

In India, the fiscal deficit is financed by obtaining funds from Reserve Bank of India, called deficit financing. The fiscal deficit is also financed by obtaining funds from the money market (primarily from banks).

Methods of Financing Fiscal Deficit:

Governments spend money on a wide variety of things, from the military and police to services like education andhealthcare, as well as transfer payments such as welfare benefits. This expenditure can be funded in a number of different ways Seigniorage,the benefit from printing money Borrowing money from the population or from abroad Consumption of fiscal reserves. Sale of fixed assets (e.g., land).

Fiscal Impact of Alternative Methods of Deficit Financing :