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What are the primary deficit and fiscal deficit in a government budget? What is the implication of the primary deficit on the economy?

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Primary deficit is that part of fiscal deficit which indicates borrowing requirement to make up the shortfall in receipts on account of expenditure other than the interest payments. In other words.

Primary Deficit = Fiscal Deficit – Interest payment 

Implications of Primary Deficit

• It indicates how much is government borrowing under compulsion to meet expenses other than interest payments. 

• A lower or zero primary deficit indicates that the interest payment of earlier loans has forced the government to borrow.

Fiscal Deficit: Refers to the excess of “Total expenditure” over the “sum of Revenue Receipts and non-debt capital receipts. It is calculated as:

Fiscal Deficit = Total Budget Expenditure (Revenue + Capital Exp.) – Revenue Receipts – Non debt Capital Receipt.

It indicates borrowing requirements of the government during the budget year.

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