The government borrows Rs. 5 lakh crore to fund a new program. If the fiscal deficit for the year is Rs. 8 lakh crore and interest payments on previous borrowings amount to Rs. 1.5 lakh crore, calculate the primary deficit for that year.
Answer
Primary deficit: Rs. 6.5 lakh crore
The correct answer is Primary deficit: Rs. 6.5 lakh crore — Step 3: Thus the primary deficit is Rs. 6.5 lakh crore.
Step-by-step solution
- Step 1: Primary deficit equals fiscal deficit minus interest payments on previous borrowings.
- Step 2: Subtract interest payments from fiscal deficit: (in lakh crore).
- Step 3: Thus the primary deficit is Rs. 6.5 lakh crore.
Common mistake: Confusing interest payments with current interest payments or using wrong sign
Concept tested: Primary deficit definition
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