CA Foundation · Business Economics · Public Finance
A government's fiscal deficit is Rs 6,00,000 crore, of which interest payments are Rs 2,00,000 crore. What is its primary deficit, and what does it show?
The primary deficit is Rs 4,00,000 crore, found by subtracting interest payments of Rs 2,00,000 crore from the fiscal deficit of Rs 6,00,000 crore. It shows the borrowing required for current non-interest spending, free of the burden from past debt.
- ARs 8,00,000 crore; borrowing including interest burden
- BRs 4,00,000 crore; borrowing needed for current non-interest spendingCorrect
- CRs 2,00,000 crore; the interest burden alone
- DRs 6,00,000 crore; total borrowing, since interest is already excluded
Explanation
Primary deficit = fiscal deficit - interest payments = 6,00,000 - 2,00,000 = 4,00,000 crore. It shows how much borrowing is needed to meet expenditure other than interest on past debt. Adding interest (Rs 8,00,000 crore) is the sign error, and equating it with fiscal deficit ignores the adjustment.
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