A government raises its capital expenditure by Rs 60 crore. It meets Rs 30 crore of this by selling shares of a public sector undertaking and borrows the rest. All other items are unchanged. What happens to the revenue deficit (RD), the fiscal deficit (FD) and the primary deficit (PD) this year?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → RD is unchanged; FD and PD both rise by Rs 30 crore.
Capital expenditure and the sale of PSU shares are capital items, so the revenue deficit does not change.
In the fiscal deficit, total expenditure rises by 60 and non-debt creating receipts rise by 30. Borrowing is not a receipt in this count, so the fiscal deficit rises by Rs 30 crore. Interest payments do not change this year, so the primary deficit also rises by Rs 30 crore.
NCERT (2026-27): “5.2.1 Measures of Government Deficit … Revenue Deficit: The revenue deficit refers to the excess of government’s revenue expenditure over revenue receipts” “5.2.1 Measures of Government Deficit … Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing” “Non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give rise to debt. Examples are recovery of loans and the proceeds from the sale of PSUs. …” “… 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” |