Which of the following statements is not true about fiscal deficit ?

Fiscal deficit is deflationary

The correct answer is option (3) : Fiscal deficit is deflationary

Explanation :

Option 1: Fiscal deficit is the difference government's total expenditure and its receipts excluding borrowing. This is correct.  Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts )

Option 2: Fiscal deficit are also known as borrowings : This is correct. Fiscal deficits are often financed through borrowings, whether from domestic sources (like issuing bonds) or external sources (like borrowing from international markets or institutions). Therefore, it indicates the total borrowing requirements of the government from all sources.

Option 3: Fiscal deficit is deflationary : This is incorrect. Fiscal deficit is typically seen as inflationary rather than deflationary, as it involves increased government spending, which can contribute to overall demand in the economy. When a government runs a fiscal deficit, it injects additional money into the economy to finance its expenditures. This increased spending can stimulate demand, increase economic activity, and potentially lead to inflationary pressures, rather than deflationary pressures.

Option 4 : Three can be fiscal deficit without revenue deficit. This is correct. Fiscal deficit includes both revenue deficit and capital expenditure. Revenue deficit specifically refers to the excess of revenue expenditure over revenue receipts. However, fiscal deficit encompasses all expenditures (including capital expenditures) and all receipts (including both revenue and capital receipts). Therefore, it is possible for a government to have a fiscal deficit without necessarily having a revenue deficit, depending on the composition of its expenditures and receipts.