Fiscal deficit is defined as the difference between the government's total expenditure and its total receipts excluding borrowings. It is expressed as: Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts).

The fiscal deficit indicates the total borrowing requirements of the government from all sources. This is because when the government's total expenditure exceeds its revenue receipts and non-debt creating capital receipts, the gap must be filled through borrowing. Thus, the fiscal deficit will have to be financed through borrowing.

From the financing side, the fiscal deficit can be expressed as: Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad. This equation clearly shows that the fiscal deficit represents the government's total borrowing from various sources.

The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy. A large share of revenue deficit in fiscal deficit indicates that a large part of borrowing is being used to meet consumption expenditure needs rather than investment.