Give the relationship between the revenue deficit and the fiscal deficit.
Revenue deficit is a part of fiscal deficit. The relationship is expressed through the formula: Fiscal Deficit = Revenue Deficit + Capital Expenditure - Non-debt creating capital receipts.
A large share of revenue deficit in the fiscal deficit indicates that a major portion of the government's borrowing is being used to meet consumption expenditure needs rather than investment. This implies that the government is dissaving and must borrow not only to finance investment but also its consumption requirements, leading to a build-up of debt and interest liabilities.
Explanation
The textbook context explicitly states that 'revenue deficit is a part of fiscal deficit' and provides the specific formula connecting the two. It further explains the implications of this relationship: a high revenue deficit within the fiscal deficit signifies that borrowed funds are utilized for consumption (dissaving) rather than capital formation, which increases debt liabilities.