Assertion (A): A rise in revenue deficit as a percentage of fiscal deficit points to a deterioration in the quality of government expenditure.
Reason (R): A large share of revenue deficit in fiscal deficit means that a large part of borrowing is used to meet consumption expenditure needs rather than investment.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): A rise in revenue deficit as a percentage of fiscal deficit points to a deterioration in the quality of government expenditure. — True. More of the deficit goes to revenue spending, so capital formation is lower.
Reason (R): A large share of revenue deficit in fiscal deficit means that a large part of borrowing is used to meet consumption expenditure needs rather than investment. — True. Revenue deficit is part of the fiscal deficit, so its share shows how much borrowing pays for consumption.
Why R explains A?
A says the quality of spending gets worse. R says why: borrowed money is spent on consumption instead of investment. Less investment means fewer assets for future growth.
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.” “Summary 4. The growth of revenue deficit as a percentage of fiscal deficit points to a deterioration in the quality of government expenditure involving lower capital formation.” |