Budget deficit (also called government deficit) refers to a situation, in which Budget Expenditures of the government are greater than the Budget Receipts.

Budget Deficit = Total Expenditure – Total Receipts

With reference to the budget of the government of India, there are three important types of Budget Deficit. 

These are :

1. Revenue Deficit
2. Fiscal Deficit
3. Primary Deficit

According to Prof Dalton, “A budget deficit exhibits excess of expenditure on income in a given period of time.”

(i) Revenue deficit: Revenue deficit is related to the Revenue Expenditure and Revenue
Receipts of the government. This does not include items of Capital Receipts and Capital Expenditure. Thus, revenue deficit is the excess of Revenue Expenditure over Revenue receipts.
RD = RE – RR, when RE > RR
(Here, RD =; Revenue Deficit, RE = Revenue Expenditure; RR = Revenue Receipts)

(ii) Fiscal deficit : Fiscal deficit is an estimated accounting for all the Receipts and Expenditures of the government. Fiscal deficit is the excess of Total Expenditure (Revenue + capital) over Total Receipts (Revenue + Capital other than borrowings). It is estimated as under :

Fiscal deficit = Total expenditure (Revenue expenditure + capital expenditure) – Total receipts other than borrowings (Revenue receipts + capital receipts other than borrowings)

FD = BE – BR other than borrowing, where BE > BR other than borrowings
(Here, FD = Fiscal deficit, BE = Budget expenditure, BR = Budget receipts)

(iii) Primary Deficit : Primary deficit is the difference between Fiscal Deficit and Interest Payment. It is estimated as under :
Primary Deficit = Fiscal Deficit – Interest Payment PD = FD – IP
(Here, PD = Primary deficit, FD = Fiscal deficit; IP = Interest payment)

In other words, primary deficit indicates government borrowings on account of current year expenditures and current year receipts of the government.