Deficits: Fiscal, Revenue Trade By Prof. Simply Simple

1. Deficits: Fiscal, Revenue & Trade� By Prof. Simply Simple Prof. Simply Simple had earlier taken you through the concept of Fiscal Deficit. (For ref: kindly refer the TMF Website) This week, we will look at Revenue Deficit (which is a subset of the Fiscal Deficit) and Trade Deficit (which is a function of our import-export trading)

2. What is a Deficit? Simply put, a budget deficit occurs when an entity (often a government) spends more money than it takes in. The opposite of a budget deficit, on the other hand, is a budget surplus.

3. To reiterate Fiscal Deficit�

4. What are Govt. Expenses? The Government needs money for its huge expenses. We can broadly divide Govt. expenses into two types: Revenue Expenses, which it incurs in running its day-to-day business like paying salary to its staff Capital Expenses, which include all expenses incurred by the Govt. for creating assets like money spent on constructing a hospital

5. What are Govt. Revenues? We can broadly divide the sources of Government revenues or earnings into two categories: Tax Sources, which include all the direct and indirect taxes, and are recurring in nature and Non-tax Sources, which include Revenue Receipts and capital receipts, and are a kind of one-time income

8. So� Revenue deficit indicates the shortfall between revenue incomes and revenue disbursements, which is to be filled by capital account surplus, or borrowings. Thus, a revenue deficit implies that the government is unable even to cover its expenditure on maintaining itself through the tax and non-tax revenues that it mobilizes, and has to resort to borrowings.

9. Confused?!Look at the graph below�

11. Therefore� Simply put, Trade Deficit is a negative balance of trade, i.e. when a country�s imports exceed its exports. Thus, the Trade Deficit is: Export � Import (where imports are greater than exports)

12. Hope you have now understood the difference between Fiscal Deficit, Revenue Deficit & Trade Deficit