Fiscal deficit occurs when a government collects lesser money - in terms of personal and corporate taxes, GST, market loans and NDCR (money received from sale of old assets) etc. - than it spends, on items such as central sector schemes, salaries of employees, subsidies, payments to states and so on.
In other words, a deficit occurs when a government spends more money than it receives
Fiscal deficit indicates how much extra money the government needs, over and above its collections, to meet its budgetary expenses.
For example, the Union Budget worth Rs 27.86 lakh crore presented in July 2019 pegged fiscal deficit at Rs 7,03,760 crore (3.3 per cent of GDP). The lion's share of that was estimated to be funded by market borrowings, such as government securities and treasury bills worth Rs 4,48,122 crore
Besides market borrowings, components such as securities against small savings, state provident fund and external debt also help a government meet its fiscal deficit, or the shortfall in the money required for meeting expenses
Other terms that are helpful in understanding the concept of fiscal deficit
Revenue deficit
By definition, revenue deficit is the excess of revenue expenditure over revenue receipts. A revenue deficit occurs when actual revenue collected by government falls short of Budget estimates. In Budget 2019, the revenue deficit was estimated at Rs 4,85,019 crore in 2019-20, up 18 per cent compared to revised estimates of Rs 4,10,930 for the previous financial year.
Effective revenue deficit
Effective revenue deficit is defined as the difference between revenue deficit and grants for creation of capital assets.
Primary deficit
Primary deficit is fiscal deficit less interest payments. In Budget 2019, the primary deficit was estimated at Rs 43,289 crore in 2019-20 over interest payments of Rs 6,60,471 crore. (Rs 7,03,760 crore - Rs 6,60,471 crore = Rs 43,289 crore)
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