Revenue Deficit in economics refers to the shortfall between the government’s revenue expenditure and its revenue receipts. It is calculated as:

Revenue Deficit = Revenue Expenditure – Revenue Receipts

Revenue expenditure includes routine government expenses such as salaries, subsidies, interest payments, and defence spending, whereas revenue receipts consist of tax and non-tax revenues (like dividends from public enterprises). A revenue deficit indicates that the government’s regular earnings are insufficient to meet its day-to-day expenses, forcing it to borrow even for consumption needs.

Revenue deficit is a critical measure of fiscal health. Unlike capital expenditure, which creates long-term assets, revenue expenditure often does not generate future economic returns. A persistently high revenue deficit implies that the government is not only borrowing for investment but also to finance its routine operations. This can reduce fiscal space for development spending, increase the debt burden, and limit future economic growth. Reducing revenue deficit is essential for achieving fiscal sustainability. It encourages efficient use of resources, promotes responsible budgeting, and ensures that borrowing is directed more towards productive capital formation. For countries like India, managing revenue deficit is vital to fund infrastructure, education, and health without compromising economic stability or increasing dependency on external debt.