Effective Revenue Deficit means

  1. Difference between total expenditure and total receipts
  2. Revene Deficit including Grants in aid for the creation of assets to states
  3. Revenue Deficit excluding Grants in aid for for the creation of assets to states
  4. Difference between revenue expenditure and revenue receipts

Answer (Detailed Solution Below)

Option 3 : Revenue Deficit excluding Grants in aid for for the creation of assets to states
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The correct answer is Revenue Deficit excluding Grants in aid for the creation of assets to states.

  • The calculation of the effective revenue deficit was introduced Union Budget in the year 2010-11
  • Every year the Central Government gives grants to State Governments and Union Territories with the legislature.
  • With these grants, the State government and Union Territories also creates capital assets but these things are not added in the capital expenditure of the  Central Government.
  • To capture this expenditure the new formula of Effective Revenue Deficit was evolved.
  • Effective Revenue Dificit= Revenue Deficit - Grants in aid for the creation of capital assets.

​Additional Information

  • Budget Deficit= Total Expenditure -Total Receipts
  • Revenue Deficit= Revenue Expenditure and Revenue Receipts
  • Fiscal Deficit= Total Expenditure-Total Receipts except borrowing and other liabilities.
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