Which of the following expression shows the formula of Gross Fiscal Deficit ?

Correct — option (4), Gross Fiscal Deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad.

Fiscal deficit is the gap between the government's total expenditure and its total receipts excluding borrowing. NCERT's Class XII textbook Introductory Macroeconomics (chapter 5, Government Budget and the Economy, 2026-27 reprint) writes it two ways.

From the budget side: Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts).

That gap has to be met by borrowing, so NCERT also measures it from the financing side: Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad. That is the expression in option (4).

Net borrowing at home, NCERT explains, includes borrowing directly from the public through debt instruments such as small savings schemes, and indirectly from commercial banks through the Statutory Liquidity Ratio.

The idea to remember: the fiscal deficit is the government's total borrowing requirement from all sources.

Why the others are wrong

• (1)
  Gross Fiscal Deficit = Primary Deficit + Net borrowing from abroad — NCERT defines Gross primary deficit = Gross fiscal deficit – Net interest liabilities. Turned round, the fiscal deficit is the primary deficit plus net interest liabilities, not plus foreign borrowing.

  Borrowing from abroad is one of the three sources that finance the whole fiscal deficit, as option (4) shows.

• (2)
  Gross Fiscal Deficit = Total Expenditure – Revenue Receipts — This leaves out non-debt creating capital receipts, such as recovery of loans and proceeds from the sale of PSUs, which NCERT adds to revenue receipts before subtracting.

  Worked on Rajasthan's 2021-22 figures in the Economic Review 2022-23, it would give ₹50,643 crore (2,34,563 – 1,83,920), overstating the printed fiscal deficit of ₹48,238 crore by the ₹2,405 crore of non-debt capital receipts.

• (3)
  Gross Fiscal Deficit = Revenue Deficit + Capital Expenditure — NCERT's version has a third term: Fiscal Deficit = Revenue Deficit + Capital Expenditure – non-debt creating capital receipts. Option (3) drops that subtraction.

  Without it, option (3) comes to the same thing as option (2), because revenue deficit plus capital expenditure equals total expenditure minus revenue receipts.

NCERT measures government deficit three ways. Revenue deficit = Revenue expenditure – Revenue receipts. Fiscal deficit is total expenditure minus revenue receipts and non-debt creating capital receipts. Primary deficit is the fiscal deficit minus net interest liabilities.

Non-debt creating capital receipts do not give rise to debt; NCERT's examples are recovery of loans and proceeds from the sale of PSUs. Borrowing is the capital receipt left out.

The revenue deficit sits inside the fiscal deficit. NCERT notes that a large share of revenue deficit in fiscal deficit means much of the borrowing meets consumption expenditure rather than investment.

The primary deficit strips out interest on past debt, to show the present year's own imbalance.

Key facts

• NCERT: Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts).
• NCERT, financing side: Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad.
• NCERT: Fiscal Deficit = Revenue Deficit + Capital Expenditure – non-debt creating capital receipts.
• NCERT: Gross primary deficit = Gross fiscal deficit – Net interest liabilities.
• Rajasthan Economic Review 2022-23: the State's fiscal deficit in 2021-22 was ₹48,238 crore, 3.96 per cent of GSDP.

Common traps

• Forgetting non-debt creating capital receipts: total expenditure minus revenue receipts overstates the fiscal deficit by recovery of loans and disinvestment proceeds.
• Adding the wrong item to the primary deficit: the fiscal deficit is the primary deficit plus net interest liabilities.
• Treating options (2) and (3) as different: revenue deficit plus capital expenditure is the same as total expenditure minus revenue receipts.

• practice — not a real PYQ

  A government's budget shows (₹ crore): revenue receipts 100, revenue expenditure 120, capital expenditure 40, recovery of loans 5, and disinvestment proceeds 5. Its gross fiscal deficit is

  • (a)₹60 crore
  • (b)₹50 crore
  • (c)₹20 crore
  • (d)₹40 crore
  Answer(2) — Total expenditure = 120 + 40 = 160. Non-debt receipts = 100 + 5 + 5 = 110. Fiscal deficit = 160 – 110 = 50. Option (1) is 160 – 100, leaving out the non-debt capital receipts; option (3) is the revenue deficit (120 – 100); option (4) is the capital expenditure alone.
• practice — not a real PYQ

  Which of the following correctly defines the gross primary deficit?

  • (a)Gross fiscal deficit – Net interest liabilities
  • (b)Gross fiscal deficit + Net interest liabilities
  • (c)Revenue expenditure – Revenue receipts
  • (d)Total expenditure – Revenue receipts
  Answer(1) — NCERT defines gross primary deficit as gross fiscal deficit minus net interest liabilities. Option (2) adds interest instead of removing it; option (3) is the revenue deficit; option (4) leaves out non-debt capital receipts and does not remove interest.