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The difference between revenue deficit and grants for creation of capital assets is called
  • a)
    Fiscal deficit
  • b)
    Budget deficit
  • c)
    Effective revenue deficit
  • d)
    Primary deficit
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
The difference between revenue deficit and grants for creation of capi...
Effective revenue deficit= revenue deficit-grants for creation of capital assets.
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The difference between revenue deficit and grants for creation of capi...
The correct answer is option 'C', which is effective revenue deficit.

Effective revenue deficit refers to the difference between revenue deficit and grants for creation of capital assets. In order to understand this concept better, let's break down the terms involved:

1. Revenue Deficit: Revenue deficit refers to the excess of revenue expenditure over revenue receipts. In simpler terms, it is the shortfall of the government's revenue income in meeting its expenses. Revenue expenditure includes items like salaries, pensions, subsidies, interest payments, etc., while revenue receipts include items like taxes, fees, fines, dividends, etc.

2. Grants for Creation of Capital Assets: Grants for creation of capital assets refer to the funds received by the government for investment in infrastructure and other capital projects. These grants are specifically meant for creating long-term assets such as roads, bridges, schools, hospitals, etc.

Now, let's understand the difference between these two concepts:

- Revenue Deficit: Revenue deficit indicates the extent to which the government is relying on borrowing or drawing from its capital reserves to meet its day-to-day expenses. It shows the deficit in the revenue account of the government.

- Grants for Creation of Capital Assets: Grants for creation of capital assets, on the other hand, represent the inflow of funds specifically designated for investment in long-term assets. These grants are not meant to cover the government's day-to-day expenses.

- Effective Revenue Deficit: Effective revenue deficit is calculated by subtracting grants for creation of capital assets from revenue deficit. Therefore, it represents the portion of revenue deficit that is not utilized for creating capital assets. In other words, it shows the extent to which the government is borrowing or using its capital reserves for non-productive purposes.

By focusing on effective revenue deficit, the government can ensure that the borrowed funds or capital reserves are utilized in a more productive manner for the creation of assets that will contribute to the economy's long-term growth. This helps in maintaining fiscal discipline and avoiding excessive reliance on borrowing.
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The difference between revenue deficit and grants for creation of capital assets is calleda)Fiscal deficitb)Budget deficitc)Effective revenue deficitd)Primary deficitCorrect answer is option 'C'. Can you explain this answer?
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