Explanation:

Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets.The concept of effective revenue deficit has been suggested by the Rengarajan Committee on Public Expenditure. It is aimed to deduct the money used out of borrowing to finance capital expenditure. The concept has been introduced to ascertain the actual deficit in the revenue account after adjusting for expenditure of capital nature. Focusing on this will help in reducing the consumptive component of revenue deficit and create space for increased capital spending.