In a year, the revenue deficit of a government is 2 per cent of GDP, its fiscal deficit is 5 per cent of GDP and its primary deficit (fiscal deficit minus interest payments) is 1.5 per cent of GDP. Which of the following is correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Interest payments are 3.5 per cent of GDP, and capital expenditure exceeds non-debt creating capital receipts by 3 per cent of GDP.
Primary deficit = fiscal deficit − interest payments, so interest payments are the gap between the two. Also, fiscal deficit = revenue deficit + (capital expenditure − non-debt creating capital receipts).
\( \displaystyle \text{Interest payments} = 5 - 1.5 = 3.5 \)
\( \displaystyle \text{Capital expenditure} - \text{non-debt receipts} = 5 - 2 = 3 \)
Both figures are per cent of GDP: interest 3.5 and the capital gap 3.
Option (1) — this takes the revenue deficit, 2, as the capital gap.
NCERT (2026-27): “… 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 gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy. 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). …” |