Previous Year Question
If interest payment is added to primary deficit, it is equivalent to
Budget deficit
Fiscal deficit
Deficit financing
Revenue deficit
Correct Answer: B
Detailed Solution
The Primary Deficit is obtained after subtracting Interest Payments from the Government's Fiscal Deficit.
That is—
Primary Deficit = Fiscal Deficit − Interest Payments
Rearranging this formula—
Fiscal Deficit = Primary Deficit + Interest Payments
Therefore, if interest payments are added to the primary deficit, the resulting amount is the Fiscal Deficit.
The Fiscal Deficit broadly represents the difference between the Government's Total Expenditure and Total Non-Debt Receipts. It indicates the borrowing requirement of the Government to finance its total expenditure.
On the other hand, the Primary Deficit removes the interest burden on past debt from the Fiscal Deficit. It therefore helps indicate how much additional borrowing requirement arises from the current year's fiscal operations, excluding interest payments.
For example, if the Fiscal Deficit is ₹10 lakh crore and Interest Payments are ₹4 lakh crore—
Primary Deficit = ₹10 − ₹4 = ₹6 lakh crore
and—
₹6 lakh crore + ₹4 lakh crore = ₹10 lakh crore Fiscal Deficit