If we deduct grants for creation of capital assets from revenue deficit, we arrive at the concept of

The concept of 'Effective Revenue Deficit' (ERD) was introduced in the Union Budget to address accounting anomalies where certain revenue expenditures actually contribute to asset formation. While revenue expenditure is theoretically defined as spending that does not create physical or financial assets, the Central Government provides various 'Grants for creation of capital assets' to States and Union Territories [1]. These grants are recorded as revenue expenditure in the Union Budget because the resulting assets (like roads or ponds under MGNREGA) are owned by the State governments rather than the Centre [2]. By deducting these specific grants from the total Revenue Deficit, the government arrives at the Effective Revenue Deficit [1]. This metric provides a more accurate picture of the government's actual consumption expenditure and its impact on the economy's capital base [2].

Sources

1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Effective revenue deficit' and 'effective capital expenditure' > p. 153
2. [2] https://www.indiabudget.gov.in/budget2019-20(I)/ub2019-20/frbm/frbm2.pdf