The budget of a government shows the following:
| Item | Rs crore |
|---|---|
| Total expenditure | 1,000 |
| Revenue receipts | 600 |
| Recovery of loans | 40 |
| Sale of shares in PSUs | 60 |
| Interest payments | 120 |
How much must the government borrow, and what is its primary deficit?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Borrowing Rs 300 crore; primary deficit Rs 180 crore
Given:
Total expenditure = Rs 1,000 crore
Revenue receipts = Rs 600 crore
Recovery of loans = Rs 40 crore
Sale of shares in PSUs = Rs 60 crore
Interest payments = Rs 120 crore
The government must borrow its fiscal deficit: total expenditure minus revenue receipts and non-debt creating capital receipts (recovery of loans and PSU sales).
Fiscal deficit = 1,000 − (600 + 40 + 60) = 1,000 − 700 = Rs 300 crore
Primary deficit = Fiscal deficit − Interest = 300 − 120 = Rs 180 crore
Interest is subtracted from the fiscal deficit, never added.
Option (2) — borrowing of Rs 400 crore leaves out the PSU sale and the loan recovery.
NCERT (2026-27): “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. … The fiscal deficit will have to be financed through borrowing. Thus, it indicates the total borrowing requirements of the government from all sources. …” “… 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 …” |