Read the following statements:
Statement I: The revenue deficit can be larger than the fiscal deficit when non-debt creating capital receipts are larger than capital expenditure.
Statement II: When the revenue deficit is zero, the fiscal deficit equals capital expenditure plus non-debt creating capital receipts.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Both statements rest on one relation: fiscal deficit = revenue deficit + capital expenditure − non-debt creating capital receipts.
Statement I: The revenue deficit can be larger than the fiscal deficit when non-debt creating capital receipts are larger than capital expenditure. — True. If these receipts are larger than capital expenditure, the last two terms together are negative. The fiscal deficit is then smaller than the revenue deficit.
Statement II: When the revenue deficit is zero, the fiscal deficit equals capital expenditure plus non-debt creating capital receipts. — False. With a zero revenue deficit, the fiscal deficit is capital expenditure minus non-debt creating capital receipts, since those receipts reduce the need to borrow.
NCERT (2026-27): “5.2.1 Measures of Government Deficit Non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give rise to debt. Examples are recovery of loans and the proceeds from the sale of PSUs. …” “… The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy. 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.” |