Revenue deficit occurs when the actual amount of expenditure and actual amount of received revenue do not tally with the anticipated expenditure and revenue figures.
Unlike revenue surplus, where the actual amount surpasses the estimated amount, revenue deficit falls short of the anticipated amount to be obtained. For example, if an establishment's projected revenue is $400,000 and projected expenditures are $100,000, then the establishment expects to obtain a net amount of $300,000. During the fiscal year, the total revenue obtained by that establishment is $350,000 and it's total expenditure is $95,000. Then the net amount obtained by that establishment will be $255,000, which is $45,000 less than the estimated receipt of $300,000. In that case, it can be said that the establishment created a revenue deficit of $45,000.
The revenue deficit is causing a major concern to the Government of India. The Government of India expects to eliminate revenue deficit in 2008-09 financial year and is determined to reduce fiscal deficit to 3 % of the GDP (Gross Domestic Product) by the end of 2008-09 financial year.
Revenue deficit gives evidence of the deficit between revenue incomes and expenditures, which is normally met by capital account surplus, or borrowings. Thus, the revenue deficit effectively acquires the resources by preemption, which normally goes into capital investment.
Recommendations and Advice by Experts
The Progress, Harmony and Development Chamber of Commerce and Industry (India), recommended Government of India for taking precautionary measures to reduce revenue deficit level not less than 50% from the current level. This will definitely enhance the financial condition of India. The PHDCCI ( Progress, Harmony and Development Chamber of Commerce and Industry ) also recommends to lower the ratio of revenue deficit to fiscal deficit below 50 percent.