Effective Revenue Deficit I Revenue Deficit #budget #indianeconomy #upsc #uppsc #bpsc #rpsc

Effective Revenue Deficit is the difference between revenue deficit and grants for the creation of capital assets. Every year the Central Government gives grants to State Government and Union Territories and with the help of these grants both create capital assets however these capitals are not added to the capital expenditure of the central government. Therefore to measure such expenditure an effective revenue deficit has been introduced.

What is Effective Revenue Deficit?
The Effective Revenue Deficit does not include revenue expenditures made in the form of grants for capital asset creation.
A new strategy to capture the ‘effective revenue deficit’ was introduced in Budget 2011-12 which excludes those revenue expenditures (or transfers) in the form of grants for the creation of capital assets. Effective Revenue Deficit was established as a fiscal metric in 2012-13.

Formula: Effective Revenue Deficit = Revenue Deficit - Grants in aid for capital assets
It excludes those revenues expenditures, which were done in the form of grants for the creation of capital assets.

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