Introduction to primary deficit
- Primary deficit is known as the difference between the current year's fiscal deficit and the interest payment on the earlier borrowings.
- It registers the borrowing requirements of the government, excluding interest. It also displays how much of the government's expenses, other than interest payment, can be reached through borrowings.
Understanding Primary Deficit
A shrinking primary deficit shows progress towards fiscal health. The Budget document also suggests a deficit as a percentage of GDP. This is to promote comparison and get a proper perspective. Prudent fiscal management demands that the government does not borrow to consume in the ordinary course.
Calculating The Primary Deficit
The primary deficit is calculated by subtracting interest payments for the borrowings from the current year's fiscal deficit. The fiscal deficit is calculated by determining the difference between the total income and total expenditure of the government.
Formula For Calculating The Primary Deficit
Primary deficit= Total revenue - Total expenditure excluding interest payments on its debt. Primary deficit = Fiscal deficit - Interest payment. The interest payment will be the payment that a government makes on borrowings to the creditors.
