From a macroeconomic perspective, which indicator best captures the government’s borrowing requirement excluding interest payment…

Question

From a macroeconomic perspective, which indicator best captures the government’s borrowing requirement excluding interest payments on past debt?

1. A. Budget deficit
2. B. Primary deficit (Correct answer)
3. C. Fiscal deficit
4. D. Revenue deficit

Correct Answer

Option B — Primary deficit

Detailed Solution & Explanation

The correct answer is Primary deficit.

Key Points

• The primary deficit is the fiscal deficit minus interest payments on past borrowing.
• Removing interest strips out the cost of previous debt, leaving the borrowing attributable to the current year's operations — exactly what the question describes.
• The alternatives measure something else: the fiscal deficit includes interest, and the revenue deficit concerns only the revenue account rather than total borrowing.

Additional Information

• The formulae worth memorising:
  • Fiscal deficit = total expenditure − total receipts excluding borrowings
  • Revenue deficit = revenue expenditure − revenue receipts
  • Primary deficit = fiscal deficit − interest payments
  • Effective revenue deficit = revenue deficit − grants for creation of capital assets
• A zero primary deficit means the government is borrowing solely to service existing debt, taking on no new obligations for current spending.
• The FRBM Act, 2003 sets targets for fiscal consolidation, and fiscal deficit is conventionally expressed as a percentage of GDP.
• Fiscal deficit is financed by borrowing from the market, the RBI or external sources, and is the single most watched budget number.