CA Foundation · Business Economics · Public Finance
A government has revenue receipts of Rs 3,000 crore, non-debt capital receipts of Rs 200 crore, and total expenditure of Rs 4,500 crore, of which interest payments are Rs 400 crore. What is the primary deficit?
The primary deficit is Rs 900 crore. First compute the fiscal deficit as expenditure of Rs 4,500 crore less receipts of Rs 3,200 crore, giving Rs 1,300 crore. Then subtract interest payments of Rs 400 crore, since primary deficit excludes the burden of interest on past debt.
- ARs 1,300 crore
- BRs 900 croreCorrect
- CRs 1,700 crore
- DRs 1,500 crore
Explanation
Fiscal deficit = 4,500 - (3,000 + 200) = Rs 1,300 crore. Primary deficit = fiscal deficit - interest payments = 1,300 - 400 = Rs 900 crore. Rs 1,700 wrongly adds interest instead of subtracting it, and Rs 1,300 is the fiscal deficit itself.
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