Primary Deficit in Government Budget – Meaning, formula, examples class 12
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What is the meaning of Priamary Deficit (Class 12)
In simple words, Primary deficit indicates government borrowings on account of current year Excess expenditures over current year receipts of the government.
It just shows how much current year budget expenditure in excess of current year Budget budget receipts.
In short, it shows the borrowing requirement of the government to cover excess budget expenditure or the current fiscal year.
Let’s understand Primary Deficit with example
Suppose government current year receipts and expenditure are given below
Note:- there is no previous year or accumulated borrowing on the government
- Revenue Expenditure = ₹ 2000 (no interest on accumulated borrowing)
- Capital Expenditure = ₹ 1000
- Revenue Receipts = ₹ 800
- Capital Receipts (recovery of loans ₹ 500, disinvestment ₹ 600) = ₹ 1100
In the above example
Total budget Expenditure = Revenue Expenditure + Capital Expenditure
Total budget Expenditure = 2000 + 1000 = ₹ 3000
Total budget receipts = ₹ 1100
The excess of current year expenditure over current year receipts is
₹ 3000 – ₹ 1100 = ₹ 1900
This ₹ 1900 would be met when the government raises borrowings. As it is only the last resort.
Thus Primary deficit implies the current year requirement of borrowing to meet only current year excess expenditure over receipts.
Definition of Primary Deficit
Primary deficit si the difference between fiscal deficit and interest payment
T.R Jain
Primary Deficit refers to difference between fiscal deficit of the current year and interest payments on the previous borrowings.
Sandeep Garg
Primary deficit is that part of fiscal deficit which indicates borrowing requirements to make up the shortfall in receipts on account of expenditure other than the interest payments
S.K Aggarwal
The formula of Primary Deficit
Primary Deficit = Fiscal Deficit – Interest Payments
Gross Primary Deficit = Gross Fiscal Deficit – Net Interest liabilities
Net Interest liabilities = Interest payments – Interest receipts by the government on net domestic lending.
Reasons for Primary Deficit in government Budget
Excess of Budget Expenditure
Lesser Budget Receipts
Implications of Primary Deficit
It shows that in the current year total budget expenditure are in excess of budget receipts. It shows the amount of borrowing required to meet the current year’s excess budget expenditure.
It indicates that the government is in the debt trap because of excess expenditure on productive purposes.
What are the measures to correct Primary Deficit
Reduce budget Expenditure
Increase Budget Receipts
Numerical on Primary Deficit with solutions
Q. 1 The interest payments as per the government budget during a year are ₹ 1,30,000 crores. If total borrowing requirements of the government are estimated at ₹ 240000 crores, then how much is a primary deficit.
Solution
Fiscal deficit = Total borrowing
Fiscal Deficit = ₹ 240000
Primary Deficit = Fiscal Deficit – Interest Payments
Primary Deficit = 2,40,000 – 1,30,000
Primary Deficit = ₹ 1,10,000
| Topic | Chapters (Unit) |
| Syllabus | Syllabus of Government Budget and the Economy chapter Economics class 12 |
MCQs of Government Budget for class 12, CUET, CBSE, ISC and state Board
| 1. | MCQS of Government Budget class 12, CUET, CBSE, ISC |
| 2. | Assertion Reason MCQs of Government Budget class 12, CUET, CBSE, ISC |
| 3. | Matching Type MCQs of Government Budget class 12, CUET, CBSE, ISC |
| 4. | Case/situation Based MCQs of Government Budget class 12, CUET, CBSE, ISC |
