Which of the following statements about the revenue deficit and the fiscal deficit is NOT correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → The fiscal deficit is obtained by adding interest payments to the revenue deficit.
Adding interest payments to the primary deficit gives the fiscal deficit. Adding them to the revenue deficit does not give any deficit measure.
Option (1) A government can have a fiscal deficit even when its revenue deficit is zero. — True. With RD = 0, FD = capital expenditure − non-debt creating capital receipts, which is positive when capital expenditure is larger.
Option (2) Fiscal deficit = Revenue deficit + Capital expenditure − Non-debt creating capital receipts. — True. It shows how the fiscal deficit is built up from the revenue deficit.
Option (3) The fiscal deficit is obtained by adding interest payments to the revenue deficit. — False. Primary deficit + interest payments = fiscal deficit.
Option (4) The revenue deficit is a part of the fiscal deficit. — True. The relation in Option (2) shows it.
NCERT (2026-27): “5.2.1 Measures of Government Deficit … From the way gross fiscal deficit is measured as given above, it can be seen that revenue deficit is a part of fiscal deficit (Fiscal Deficit = Revenue Deficit + Capital Expenditure - non-debt creating capital receipts). A large share of revenue deficit in fiscal deficit indicated that a large part of borrowing is being used to meet its consumption expenditure needs rather than investment.” “… To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments …” |