Government deficits and the rules that limit them
A deficit means the government spends more than it earns. The Budget tracks several kinds of gap, and a law sets limits.
What the paper can ask
- India's law on fiscal responsibility received the President's assent on 26 August 2003 and came into force on 5 July 2004.
- Targets set after it was passed: bring the fiscal deficit down to 3 percent of GDP by 31 March 2008 and remove the revenue deficit by 31 March 2009, with a revenue deficit cut of at least 0.5 percent of GDP every year.
- The law allows targets to be exceeded on grounds such as national security, or other exceptional grounds the Central Government specifies.
- A committee headed by N. K. Singh reviewed these fiscal rules. It gave its report on 23 January 2017 and the report was made public on 14 April 2017.
Latest
Budget 2026-27 (1 February 2026) targets a fiscal deficit of 4.3 percent of GDP for 2026-27.
Why exams ask
Setters ask what each deficit includes or leaves out, which law sets deficit limits and when, and the latest Budget's deficit target.
The full story
When the government spends more than it earns, the shortfall is a deficit and it has to be covered by borrowing. The Budget does not report just one gap. It reports several, and each one counts different items of income and spending, for example whether interest payments or loans are included. Parliament also passed a law to keep these gaps within limits.
In the news
Test yourself
1.Fiscal deficit of the government is:
Correct. Fiscal deficit = total expenditure minus (revenue receipts + non-debt capital receipts). It shows how much the government must borrow in a year.
Not quite. Fiscal deficit = total expenditure minus (revenue receipts + non-debt capital receipts). It shows how much the government must borrow in a year. It goes into your error book.
2.Revenue deficit is the excess of:
Correct. Revenue deficit = revenue expenditure minus revenue receipts; it means the government borrows even to meet day-to-day expenses.
Not quite. Revenue deficit = revenue expenditure minus revenue receipts; it means the government borrows even to meet day-to-day expenses. It goes into your error book.
3.Primary deficit equals fiscal deficit minus:
Correct. Primary deficit = fiscal deficit minus interest payments on past debt. It shows the current year's borrowing need excluding the legacy of old loans.
Not quite. Primary deficit = fiscal deficit minus interest payments on past debt. It shows the current year's borrowing need excluding the legacy of old loans. It goes into your error book.