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Question

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

In the annual budget estimates of a state government, the following budgetary figures are reported for a given financial year:
- Total Revenue Receipts: ₹2,50,000₹ 2,50,000 crore
- Non-debt Capital Receipts: ₹15,000₹ 15,000 crore
- Revenue Expenditure: ���3,10,000��� 3,10,000 crore
- Capital Expenditure: ₹75,000₹ 75,000 crore
- Interest Payments on past public debt: ₹45,000₹ 45,000 crore

Based on the provided figures, what is the Primary Deficit of the state government for that financial year (in ₹₹ crore)?

Answer: 75000 crore

Answer

The Primary Deficit of the government is ₹ 75,000 crore.
The Primary Deficit reflects the net borrowing required to meet current year expenses excluding committed interest costs. It is derived as Fiscal Deficit minus Interest Payments. First, Total Expenditure (3,10,000+75,000=3,85,0003,10,000 + 75,000 = 3,85,000 crore) minus Total Non-Debt Receipts (2,50,000+15,000=2,65,0002,50,000 + 15,000 = 2,65,000 crore) gives a Fiscal Deficit of ₹1,20,000₹ 1,20,000 crore. Subtracting the interest payments of ₹45,000₹ 45,000 crore yields a Primary Deficit of ₹75,000₹ 75,000 crore.

Step-by-Step Solution

1
Calculate Total Expenditure
₹ 3,85,000 crore
Total Expenditure includes both current operational expenses (Revenue Expenditure) and creation of assets (Capital Expenditure).
2
Calculate Total Non-Debt Receipts
₹ 2,65,000 crore
Non-Debt Receipts consist of tax/non-tax revenues and capital receipts that do not create future repayment obligations (such as loan recoveries).
3
Calculate Fiscal Deficit
₹ 1,20,000 crore
Fiscal Deficit measures the total borrowing requirement of the government, obtained by subtracting total non-debt receipts from total expenditure.
4
Calculate Primary Deficit
₹ 75,000 crore
Primary Deficit indicates the current fiscal imbalances by excluding interest burdens accumulated from past debt liabilities.

Key Concept

Primary Deficit and Fiscal Deficit Metrics in Public Finance
Estimated Time:1m 30s
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Topics

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