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8. FISCAL SECTOR STATISTICS

8.1. Introduction

The term ‘Budget’ refers broadly to the financialproposals, which the Minister for Finance putsbefore the Houses of Parliament or the stateLegislature as the case may be. In theConstitution of India, reference is made to the‘Laying of Annual financial Statement before theHouses of Parliament or the Legislatures of theStates’. This document is a statement ofestimated receipts and expenditure of thegovernment for the coming financial year and isgenerally known as the ‘Budget’. It also containsactuals for the preceding year and revisedestimates of the current year. The Reserve Bankof India compiles and disseminates the budgetarydata of the Central Government, StateGovernments, combined finances of the Centraland State Governments, and public debt. Studiesbased on these data are regularly published inReserve Bank of India Bulletin.

8.2. Deficit Indicators

In general, RBI follows the Government of India’sapproach/methodology for compilation in respectof various deficits/fiscal indicators. Details ofmethodology followed in budget 2006-07 arepresented in Annex-8.1. The definitions ofvarious deficit indicators used in compilation offiscal statistics are as follows: Revenue Deficitdenotes the difference between revenue receiptsand revenue expenditure. The conventional deficit(budgetary deficit) is the difference between allreceipts and expenditure, both revenue andcapital. The gross fiscal deficit (GFD) is the excessof total expenditure including loans net ofrecovery over revenue receipts (including externalgrants) and non-debt capital receipts. Since1999-2000, GFD excludes States’ share in smallsavings as per the new system of accounting.The net fiscal deficit is the gross fiscal deficitless net lending of the Central Government. Thenet primary deficit denotes net fiscal deficit minusnet interest payments. Primary revenue balancedenotes revenue deficit minus interest payments.The net RBI credit to the Central Governmentrepresents the sum of variations in the RBI’s

holdings of (i) Central Government datedsecurities, (ii) Treasury Bills, (iii) Rupee Coinsand (iv) Loans and Advances from RBI to Centresince April 1, 1997 adjusted for changes in theCentre’s cash balances with RBI in the case ofCentre. Regarding State Governments, net RBIcredit refers to variation in loans and advancesgiven to them by the RBI net of their incrementaldeposits with the RBI, for the State Governmentshaving accounts with the RBI.

8.3. Combined Finances

While defining the combined deficit/fiscalindicators, the Bank broadly follows theapproach/methodology adopted by InternationalMonetary Fund (IMF) in its Government FinanceStatistics (GFS) Manual. The fiscal variables areworked as the sum of Centre and States minusinter-governmental transactions. The data oninter-governmental transactions viz. States’ sharein Central taxes, grants to States and interestreceipts from States in the revenue account;loans and advances to States and recovery ofloans from States in the capital account, aretaken from the Central Government budgetdocuments. Combined GFD is the GFD ofCentral Government plus GFD of StateGovernments minus net lending (loans andadvances from States minus recovery of loansand advances from States) from CentralGovernment to State Governments. Revenuedeficit is the difference between revenue receiptsand revenue expenditure of the Central and StateGovernments adjusted for inter-Governmentaltransactions in the revenue account. Grossprimary deficit is defined as combined GFDminus combined interest payments. Combinedinterest payments are sum of interest paymentsof the Centre and State governments net ofinterest payments by State governments to theCentre.

8.4. State Government Finances

All moneys coming into the possession of anddisbursed by the public officers of the State inthe course of their official duties have to be

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properly accounted for in the primary accountsmaintained by them and the form in which theaccounts are to be kept is prescribed by theComtroller and Auditor General of India (CAG).The Finance Department is required to preparefor each financial year, a statement of all receiptsand expenditure expected to be realised orincurred during the year, which is called theAnnual Financial Statement (AFS) or the Budgetas laid down in Article 202 of the Constitution.Under Article 150 of the Constitution of India,the accounts of States are to be kept in suchform as the CAG may, with the approval of thePresident, prescribe. In exercise of these powers,the CAG has prescribed a list of major and minorheads of accounts in which Governmentaccounts should be kept. In accordance with theprovisions of Articles 266 and 267 of theConstitution, the accounts of the Governmentare to be maintained into three main parts -Part I: Consolidated Fund of the State, Part II:Contingency Fund of the State, and Part III:Public Account of the State. These accounts arealso shown in the budget documents of the StateGovernments.

All budgetary heads are broadly classified intotwo viz., Revenue Account (Revenue Receipts andRevenue Expenditure) and Capital account(Capital Receipts and Capital Disbursements) asset out in Annex 8.2. Department of EconomicAnalysis and Policy (Division of State and LocalFinances) of RBI brings out an annual Study‘State Finances - A Study of Budgets’ based onbudget documents of the State Governments. TheStudy may be referred to for further detailedclassification of budgetary heads.

As an illustration, Annex 8.3 presents theexplanatory notes as given in the budgetdocuments of the Government of Maharashtra.

8.5. Measures of Resource Gap: Conceptsand Definitions

There is no single criterion to measure theresource gap in the Government finances. Thechoice of a particular measure is, therefore,purpose specific. In the context of Indian publicfinance, the traditional approach while measuringthe resource gap takes into consideration

revenue account gap, capital account gap andoverall gap. Of late, there has been a frequentmention of the concept of gross fiscal deficit(GFD) by researchers while analyzing thefinances of the State Governments; one variantof GFD viz., primary deficit, which is analyticallyuseful to examine the current operations of theGovernment finances, has been introduced inIndian public finance. The different measures ofdeficit (resource gap) are set out below.

(a) Revenue Deficit (RD) denotes the differencebetween revenue receipts and revenueexpenditure.

Revenue Account Gap = Revenue Deficit(RD) = Revenue Receipts (RR) – RevenueExpenditure (RE)

(b) Capital Deficit denotes the differencebetween capital receipts and capitaldisbursements.

Capital Account Gap = Capital AccountDeficit (CAD) = Capital Receipts (CR) –Capital Disbursements (CD)

(c) Conventional deficit (budgetary deficit oroverall deficit) is the difference between allreceipts and expenditure, both revenue andcapital.

Overall Gap = RD+CAD = (RR-RE) + (CR-CD) = [(RR+CR) – (RE+CD)]

(d) Gross Fiscal Deficit (GFD) is the differencebetween aggregate disbursements net ofdebt repayments and recovery of loans andrevenue receipts and non-debt capitalreceipts.

Gross Fiscal Deficit (GFD)

= RE + [CD-(Discharge of Internal Debt(DID) + Repayment of Loans to Centre(RLC) + Recoveries of Loans & Advances(RLA)] – RR

= RE + [Capital Outlay (CO) + Loans &Advances by States (LAS) + DID+RLC –(DID +RLC+RLA)] -RR

= (RE-RR) + [CO+ (LAS-RLA) + (DID-DID)+ (RLC-RLC)]

= RD+CO+ Net Lending (NL)

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(e) Net Fiscal Deficit (NFD) is the gross fiscaldeficit less net lending of the StateGovernments.

Net Fiscal Deficit (NFD) = GFD – (LAS-RLA)

(f) Gross Primary Deficit (GPD) is defined asGFD minus interest payments.

Primary Deficit (PD) = GFD – InterestPayment (IP)

(g) Net Primary Deficit (NPD) denotes net fiscaldeficit (NFD) minus net interest payments.

Net Primary Deficit (NPD) = NFD – [(IP-Interest Receipts (IR)]

(h) Primary revenue balance denotes revenuedeficit minus interest payments.

Primary Revenue Balance (PRB) = RD – IP

(i) Net primary revenue balance denotesrevenue deficit minus net interest payments.

Net Primary Revenue Balance (NPRB) = RD– (IP-IR)