- Concept: Effective Revenue Deficit = Revenue Deficit - Grants given to states for creation of capital assets.
- It adjusts revenue deficit by excluding grants that, while revenue expenditure for the Centre, create assets for states.
- Relevance in Fiscal Management:
- Provides a more accurate picture of the government’s true consumption spending.
- Distinguishes between grants for consumption and those for asset creation.
- Helps assess the quality of government spending.
- Allows for a better evaluation of fiscal prudence.