Types of budget deficits:
An unbalanced budget can be either surplus or deficit.

The types of deficits in a budget with specific reference to India are:
1. Revenue deficit:

• When the total expenditure of the government on revenue (current) account is more than total receipts of the government on the revenue account it results in revenue deficit.
• Revenue account contains current transactions of the government. A deficit in this account means that the government is not able to meet its routine ‘ expenditures from its current income.
• Revenue deficit shows’ inefficient working of government.

Solution:
Revenue deficit can be overcome by increasing borrowings on the capital account.

2. Budgetary deficit:
When the total expenditure (current as well as capital) is greater than the . total income (current as well as capital) it results in budgetary deficit.

Solution:
The central government undertakes deficit financing (i.e. borrows from RBI) to meet this deficit. The state governments borrow more from the central government which is then called overdraft.

3. Fiscal deficit:

• When a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings, it gives rise to,fiscal deficit.
• Thus, Fiscal deficit = Total expenditure – Total income (excluding market borrowings).
• The borrowings that a government does from the market are considered as income on the capital account. In fact this borrowing is a debt created by the government and must not be included as a source of income.

4. Primary deficit:

• Primary deficit is a relatively new concept in the Indian budget.
• The difference between fiscal deficit of the current year and interest payments on the previous borrowings is called primary deficit.
• Thus, Primary deficit = Fiscal deficit – Interest payments
• The interest payment is an important part of government expenditures. However, these expenditures actually do not incur on current activities but are an inevitable burden to be paid for amounts borrowed in the past.
• Hence, the concept of primary deficit takes out interest payments from fiscal deficit.
• This concept does not have an impact on the policy.