In a hypothetical economy, the total expenditure is Rs.700 crore, revenue receipts are Rs. 300 crore, non-debt capital receipts is Rs. 250 crore and net interest liability is Rs. 50 crore. The primary deficit for such an economy would be ________ .
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 100 crore
When a government spends more than its receipts other than borrowing, it has to borrow the gap; that gap is the fiscal deficit. Part of this borrowing only pays interest on loans taken in the past. Leaving that interest out shows the borrowing needed for present spending, and this is the primary deficit: fiscal deficit minus net interest liabilities.
Given:
Total expenditure = Rs. 700 crore
Revenue receipts = Rs. 300 crore
Non-debt capital receipts = Rs. 250 crore
Net interest liabilities = Rs. 50 crore
Working it out:
Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt creating capital receipts)
Fiscal deficit = 700 − (300 + 250) = Rs. 150 crore
Primary deficit = Fiscal deficit − Net interest liabilities
Primary deficit = 150 − 50 = Rs. 100 crore
Rs. 150 crore is only the fiscal deficit, one step short; the primary deficit is Rs. 100 crore, which is Option (2).
NCERT (2025-26): “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 Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts) 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.… Primary Deficit: We must note that the borrowing requirement of the government includes interest obligations on accumulated debt. The goal of measuring primary deficit is to focus on present fiscal imbalances. 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 Gross primary deficit = Gross fiscal deficit – Net interest liabilities Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending.…” |