Revenue deficit indicates the inability of the government to meet the expenditure on routine functioning of the economy. It implies that revenue deficit either leads to an increase in liability in the form of borrowings or reduces the assets through disinvestments. Higher borrowings will increase the future burden to repay the loan amount and interest payments.
Two measures to reduce this deficit are:
(a) Reduction of wasteful public expenditure like subsidies and curtailing non-plan expenditure.
(b) Increase revenue by increasing the tax rate and imposing new taxes. Tax evasion should be controlled.
