A country’s fiscal deficit stands at ₹ 50,000 crores. It is receiving ₹ 10,000 crores through non-debt creating capital receipts. The country’s interest liabilities are ₹ 1,500 crores. What is the gross primary deficit?

(a) ₹ 48,500 crores
(b) ₹ 51,500 crores
(c) ₹ 58,500 crores
(d) None of the above

The correct answer is (a) ₹ 48,500 crores.

Explanation

Here is the step-by-step calculation:

Identify the Goal: The question asks for the Gross Primary Deficit.
Recall the Formula: The formula for the Primary Deficit is: Primary Deficit = Fiscal Deficit – Interest Payments
Identify the Given Values:
- Fiscal Deficit = ₹ 50,000 crores
- Interest Liabilities (Payments) = ₹ 1,500 crores
Perform the Calculation:
- Primary Deficit = [latex]₹ 50,000 \text{ crores} – ₹ 1,500 \text{ crores}[/latex]
- Primary Deficit = ₹ 48,500 crores

Note: The “non-debt creating capital receipts” (₹ 10,000 crores) is extra information intended to be a distractor. The fiscal deficit (₹ 50,000 crores) already represents the total borrowing after all non-debt receipts (like loan recoveries or disinvestment) have been accounted for.

Learn More

What do these terms mean?

Fiscal Deficit: This is the total shortfall in the government’s income compared to its total spending. It tells you the total amount of money the government needs to borrow in a year.
- Fiscal Deficit = Total Expenditure – (Total Revenue + Non-debt creating receipts)
- In this problem, this number is simply given as ₹ 50,000 crores.
Non-debt creating capital receipts: This is income (a “receipt”) that doesn’t create a new loan (a “debt”). The most common example is disinvestment, where the government sells its shares in a public-sector company. This money is used to fund the budget and reduce the amount of money that needs to be borrowed.
Primary Deficit: This is the “purest” measure of a government’s current-year spending. It is the Fiscal Deficit minus all interest payments on old loans. It answers the question: “How much is the government borrowing to pay for its current services, if we ignore the baggage of old debt?”