Economics • Indian EconomyHard
How does the calculation of 'Primary Deficit' differ mathematically from 'Fiscal Deficit' in the Union Budget of India?
A. Primary deficit is fiscal deficit plus capital expenditure incurred on infrastructure projects
B. Primary deficit is fiscal deficit minus interest payments on previous borrowings✓ Correct Answer
C. Primary deficit is revenue deficit minus net lending by the central government
D. Primary deficit is effective revenue deficit plus grants created for capital asset creation
💡 Solution & Explanation
Primary deficit represents the fiscal deficit of the current year minus interest payments made on previous accumulated borrowings, showing the borrowing requirement excluding debt servicing obligations. Distractors incorrectly mix capital expenditure or revenue components into the primary deficit formula. A zero primary deficit indicates that the government needs to borrow solely to service past debt interest liabilities. This metric helps policy analysts gauge the current fiscal stance independent of historical legacy debt burdens.
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