Rameshwar's IAS

Calculation of Revenue Deficit

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A Revenue Deficit occurs when the government's net income is less than its net expenditure, or when its total revenue expenditure exceeds its total revenue receipts. When the actual amount of revenue or expenditure does not match the budgeted amount, this deficit occurs. When net income exceeds net expenditure, revenue surplus is the opposite of revenue deficit. A government or business has a revenue deficit when their income is insufficient to maintain smooth operations. The government or business will either need to lend money or sell assets to raise funds in such a circumstance.

How is the revenue deficit calculated?

The total revenue spent is subtracted from the total revenue received to determine the revenue deficit. A higher Revenue deficit indicates that the government or business is responsible for a greater amount of repayment if the fiscal deficit remains constant. There are two types of revenue deficits: both tax and non-tax revenue receipts. Keep in mind that a revenue deficit does not necessarily indicate a loss of revenue; rather, it merely demonstrates the difference between net income and net expenditure, which can indicate whether a government or business is able to afford its essential operations and necessities. A large revenue deficit means that the government or business will have to borrow a lot of money to run smoothly, so they will have to pay a lot back. The government's credit listing is impacted if the revenue deficit is not addressed.

Implications of the Deficit in Revenue

1. It suggests that the government is unable to cover the regular and recurring expenses in the proposed budget.

2. It implies that the government is dissipating, or using other sectors of the economy's savings to pay for its own consumption.

3. Additionally, it implies that the government must cover this deficit through borrowing or disinvestment of capital receipts. This indicates that a revenue deficit either reduces assets through disinvestment or results in an increase in liability as a result of borrowings.

4. Increased borrowing increases the burden on the economy in the future in terms of loan amount and interest payments due to the use of capital receipts to meet the increased consumption expenditure.

5. The government should either reduce its spending or increase its revenue when there is a large revenue deficit.

In order to make use of the surplus for development projects, revenue receipts should always exceed revenue expenditures, according to a visionary approach. However, India's budget has been experiencing revenue shortfalls for several years.

How to remove revenue deficit

1. Cut Back on Costs - The government should seriously consider ways to cut costs and steer clear of wasteful or unnecessary spending.

2. Increase Profits - The government should get more money from various tax and non-tax sources.

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