Primary Deficit

Introduction

• The primary deficit is calculated by subtracting the current year’s fiscal deficit from the government’s interest payments made throughout the financial year. 
• It shows the fiscal situation of the government during the current financial year ignoring the impact of the debt burden of the past (borrowing by previous governments). 

Significance of Primary Deficit

• It helps in assessing the financial control efforts of the government. 
• A primary deficit only checks the role of interest payment in the fiscal deficit. 
• A high primary deficit means that fiscal deficit is due to factors other than interest payments and may be structural in nature. And low primary deficit means that interest payments are responsible for fiscal deficit in a big way.
• A decrease in primary deficit shows progress towards fiscal health. The deficit is also mentioned as a percentage of GDP. It is needed to get a proper perspective and facilitate comparison.
• The difference between the primary deficit and fiscal deficit reflects the amount of interest payment on public debt generated in the past.

Difference between Primary Deficit and Fiscal Deficit

• Primary Deficit is the difference between fiscal deficit and interest payments. To calculate Primary Deficit, you also need the help of fiscal deficit. 
• Fiscal deficit is the difference between the total expenditure of the government and its total income.

Important Note

• When the primary deficit is zero, the fiscal deficit becomes equal to the interest payment. This means that the government has resorted to borrowings just to pay off the interest payments. Further, nothing is added to the existing loan.