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Budget Deficit

A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.
The opposite of a budget deficit is a budget surplus, and when inflows equal outflows, the budget is said to be balanced.

A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public and private international investments flowing in and out of a country.
The capital account includes foreign direct investment (FDI), portfolio and other investments, plus changes in the reserve account. The capital account and the current account together constitute a nation's balance of payments.

The difference between a nation’s savings and its investment. The current account is an important indicator about an economy's health.
It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.
A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world.
A current account surplus increases a nation’s net foreign assets by the amount of the surplus, and a current account deficit decreases it by that amount. The current account and the capital account are the two main components of a nation’s balance of payments.
A nation’s current account balance is influenced by numerous factors – its trade policies, exchange rate, competitiveness, forex reserves, inflation rate and others.

A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports.
The current account also includes net income, such as interest and dividends, as well as transfers, such as foreign aid, though these components tend to make up a smaller percentage of the current account than exports and imports.
The current account is a calculation of a country’s foreign transactions, and along with the capital account is a component of a country’s balance of payment.

When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.

The policy of the government regarding the level of government spending and transfers and the tax structure.

The excess of revenue expenditure over revenue receipts.
Revenue deficit is concerned with the revenue expenditures and revenue receipts of the government. It refers to excess of revenue expenditure over revenue receipts during the given fiscal year.
Revenue Deficit = Revenue Expenditure – Revenue Receipts
Revenue deficit signifies that government’s own revenue is insufficient to meet the expenditures on normal functioning of government departments and provisions for various services.

Implications of Revenue Deficit

It indicates the inability of the government to meet its regular and recurring expenditure in the proposed budget.

It implies that government is dissaving, i.e. government is using up savings of other sectors of the economy to finance its consumption expenditure.
It also implies that the government has to make up this deficit from capital receipts, i.e. through borrowings or disinvestments.

It means, revenue deficit either leads to an increase in liability in the form of borrowings or reduces the assets through disinvestment.

Use of capital receipts for meeting the extra consumption expenditure leads to an inflationary situation in the economy
Higher borrowings increase the future burden in terms of loan amount and interest payments.
A high revenue deficit gives a warning signal to the government to either curtail its expenditure or increase its revenue.
Indian Budget is facing revenue deficit for the past several years.

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