Concept Explanation:
The concept of Effective Revenue Deficit is used to measure the revenue deficit after deducting grants for the creation of capital assets. It provides a more accurate picture of the revenue deficit by excluding grants that are used for capital expenditures.

Revenue Deficit:
Revenue deficit refers to the excess of revenue expenditure over revenue receipts. It indicates that the government is not able to meet its current expenses through its current revenue sources. Revenue deficit represents the borrowing by the government to finance its current expenses.

Grants for Creation of Capital Assets:
Grants for the creation of capital assets are funds provided by the government for the development of infrastructure and other capital projects. These grants are used for long-term investments and are not considered as revenue expenditure. They are used to create assets that will generate income or provide services in the future.

Effective Revenue Deficit:
Effective revenue deficit is calculated by deducting grants for the creation of capital assets from the revenue deficit. This helps in assessing the true revenue deficit of the government by excluding the capital expenditure component from the revenue deficit.

Example:
Let's consider an example to understand this concept better. Suppose the revenue deficit of the government is Rs. 100 crore and grants for the creation of capital assets are Rs. 50 crore. In this case, the effective revenue deficit would be Rs. 50 crore (Rs. 100 crore - Rs. 50 crore).

Significance:
The concept of effective revenue deficit is important as it provides a more accurate measure of the revenue deficit. It helps in identifying the extent to which the government is relying on borrowings to finance its current expenses, excluding the capital expenditure component. This measure is particularly useful for assessing the sustainability of the government's fiscal position and its impact on the economy.

Conclusion:
In conclusion, the concept of effective revenue deficit is used to measure the revenue deficit after deducting grants for the creation of capital assets. It provides a more accurate picture of the revenue deficit by excluding grants used for capital expenditures. This measure helps in assessing the true revenue deficit and the government's reliance on borrowings to finance its current expenses.