Q. Consider the following statements:

1. Fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing.
2. The most common way to plug the fiscal deficit is to print more money by RBI.

Which of the above is / are correct?
Answer: Only 1
Notes: Only the first statement is correct. The second statement is incorrect. Borrowing and not just printing money is the most common way to plug the fiscal deficit. Fiscal deficit is the difference between the government's total expenditure and its total receipts excluding borrowing.

• Gross fiscal deficit = Total expenditure - (Revenue receipts + Non-debt creating capital receipts)

Non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give rise to debt. Examples are recovery of loans and the proceeds from the sale of PSUs.