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Gross fiscal deficit =
- a)Total expenditure + (Revenue receipts-Non- dept creating capital receipts)
- b)Total expenditure- (Revenue receipts+Non- dept creating capital receipts)
- c)Total expenditure- (Revenue receipts-Non- dept creating capital receipts)
- d)Total expenditure+ (Revenue receipts+Non- dept creating capital receipts)Total expenditure- (Revenue receipts+Non- dept creating capital receipts)
Correct answer is option 'B'. Can you explain this answer?
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Gross fiscal deficit =a)Total expenditure + (Revenue receipts-Non- de...
Total expenditure- (Revenue receipts+Non- dept creating capital receipts)
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The gross fiscal deficit (GFD) is the excess of total expenditure, including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.
Hence, the correct option is (b)
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Gross fiscal deficit =a)Total expenditure + (Revenue receipts-Non- de...
Understanding Gross Fiscal Deficit
The Gross Fiscal Deficit (GFD) is a crucial indicator of a government's financial health, representing the total borrowing requirements of the government. It reflects the difference between the total expenditure and the total revenue receipts.
Components of Fiscal Deficit
- Total Expenditure: This includes all government spending, such as current and capital expenditures.
- Revenue Receipts: This refers to the income earned by the government from taxes and other sources, excluding borrowings.
- Non-debt Creating Capital Receipts: These are receipts that do not create a liability for the government, such as disinvestment proceeds.
Formula for Gross Fiscal Deficit
To understand why option 'B' is correct, let's break down the formula:
- The formula for Gross Fiscal Deficit is:
GFD = Total Expenditure - (Revenue Receipts + Non-debt Creating Capital Receipts)
This means that to calculate the GFD, you subtract the total revenue (which includes both revenue receipts and non-debt creating capital receipts) from the total expenditure.
Why Option 'B' is Correct
- Option 'B' accurately reflects the relationship between expenditure and revenue. It shows that GFD is the excess of total expenditure over the total revenue available to the government.
Key Takeaway
- Understanding GFD is vital as it indicates how much the government is borrowing to meet its expenditure needs beyond its own revenue. A high fiscal deficit can signal potential economic issues, whereas a controlled deficit can indicate a balanced approach to fiscal management.
The Gross Fiscal Deficit (GFD) is a crucial indicator of a government's financial health, representing the total borrowing requirements of the government. It reflects the difference between the total expenditure and the total revenue receipts.
Components of Fiscal Deficit
- Total Expenditure: This includes all government spending, such as current and capital expenditures.
- Revenue Receipts: This refers to the income earned by the government from taxes and other sources, excluding borrowings.
- Non-debt Creating Capital Receipts: These are receipts that do not create a liability for the government, such as disinvestment proceeds.
Formula for Gross Fiscal Deficit
To understand why option 'B' is correct, let's break down the formula:
- The formula for Gross Fiscal Deficit is:
GFD = Total Expenditure - (Revenue Receipts + Non-debt Creating Capital Receipts)
This means that to calculate the GFD, you subtract the total revenue (which includes both revenue receipts and non-debt creating capital receipts) from the total expenditure.
Why Option 'B' is Correct
- Option 'B' accurately reflects the relationship between expenditure and revenue. It shows that GFD is the excess of total expenditure over the total revenue available to the government.
Key Takeaway
- Understanding GFD is vital as it indicates how much the government is borrowing to meet its expenditure needs beyond its own revenue. A high fiscal deficit can signal potential economic issues, whereas a controlled deficit can indicate a balanced approach to fiscal management.
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