Primary Deficit in Government Budget – Meaning, formula, examples class 12

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Looking, What is Primary Deficit in the government budget, its meaning, definition, formula, and practice questions with answers as per class 12 CBSE and other Boards syllabus.

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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

  1. Revenue Expenditure = ₹ 2000 (no interest on accumulated borrowing)
  2. Capital Expenditure = ₹ 1000
  3. Revenue Receipts = ₹ 800
  4. 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

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