Question

Difficulty: Very hardFiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure

According to the budget estimates of a state government for the financial year 2025–26, total expenditure is estimated at ₹ $1,20,000$ crore, while total receipts excluding borrowings are estimated at ₹ $85,000$ crore. If the state's revenue receipts are ₹ $75,000$ crore, revenue expenditure is ₹ $95,000$ crore, and interest payments on previous debts account for ₹ $12,500$ crore, what is the Primary Deficit of the state for the financial year 2025–26 (in ₹ crore)?

Answer: 22500 crore rupees

Answer

The Primary Deficit of the state for the financial year 2025–26 is ₹22,500 crore.

Primary Deficit indicates the net borrowing requirement of the government to fulfill current fiscal commitments, excluding past debt obligations. Gross Fiscal Deficit is calculated as Total Expenditure minus Non-debt Receipts: ₹1,20,000 crore - ₹85,000 crore = ₹35,000 crore. Subtracting the interest payments of ₹12,500 crore yields a Primary Deficit of ₹22,500 crore.

Step-by-Step Solution

1

Calculate the Fiscal Deficit of the state.

Fiscal Deficit = ₹1,20,000 crore - ₹85,000 crore = ₹35,000 crore.

Fiscal deficit measures the total borrowing requirements of the government, defined as the excess of total expenditure over total non-debt receipts.

2

Subtract Interest Payments from the Fiscal Deficit to compute the Primary Deficit.

Primary Deficit = ₹35,000 crore - ₹12,500 crore = ₹22,500 crore.

Primary deficit reflects the government's borrowing requirement for current expenses exclusive of past interest obligations.

Key Concept

Primary Deficit and Fiscal Deficit Metrics

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Topics

Fiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure