The budget of a government shows the following:
| Item | Rs crore |
|---|---|
| Revenue receipts | 900 |
| Revenue expenditure | 1,100 |
| of which: interest payments | 300 |
| of which: subsidies | 200 |
| Capital expenditure | 400 |
| Non-debt creating capital receipts | 100 |
The government cuts subsidies by Rs 50 crore and capital expenditure by Rs 50 crore, with everything else unchanged. What will be its new revenue deficit, fiscal deficit and primary deficit?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Revenue deficit Rs 150 crore, fiscal deficit Rs 400 crore, primary deficit Rs 100 crore
Given:
Revenue receipts = Rs 900 crore
Revenue expenditure = Rs 1,100 crore
of which interest = Rs 300 crore
of which subsidies = Rs 200 crore
Capital expenditure = Rs 400 crore
Non-debt creating capital receipts = Rs 100 crore
Subsidies are revenue expenditure, so their cut lowers revenue expenditure. The capital cut lowers capital expenditure only.
New revenue expenditure = 1,100 − 50 = 1,050
New capital expenditure = 400 − 50 = 350
Revenue deficit = 1,050 − 900 = Rs 150 crore
Fiscal deficit = revenue deficit + capital expenditure − non-debt capital receipts = 150 + 350 − 100 = Rs 400 crore
Primary deficit = fiscal deficit − interest = 400 − 300 = Rs 100 crore
Option (1) Revenue deficit Rs 150 crore, fiscal deficit Rs 450 crore, primary deficit Rs 150 crore — this leaves out the capital cut; the revenue deficit is not touched by that cut, but the fiscal deficit is.
NCERT (2026-27): “5.2.1 Measures of Government Deficit … From the way gross fiscal deficit is measured as given above, it can be seen that revenue deficit is a part of fiscal deficit (Fiscal Deficit = Revenue Deficit + Capital Expenditure - non-debt creating capital receipts). …” “… To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments” “… The main items of non-plan expenditure are interest payments, defence services, subsidies, salaries and pensions. …” |