Primary deficit refers to difference between fiscaldeficit of the current year and interest payments on the previous borrowings. Primary Deficit = Fiscal Deficit – Interest Payments.

The correct answer is option 'C', which states that the difference between fiscal deficit and interest payment during the year is called the primary deficit. Let's understand this concept in detail:

Fiscal Deficit:
Fiscal deficit refers to the excess of total expenditure over total revenue in a fiscal year. It is an indication of the borrowing requirements of the government to meet its expenses. It represents the shortfall of the government's total expenditure compared to its total receipts, excluding interest payments. In simple terms, fiscal deficit measures the extent to which a government spends more than it earns.

Interest Payment:
Interest payment refers to the money that the government pays as interest on its borrowings. Governments borrow money by issuing bonds and other securities, and they have to pay interest on these borrowings. The interest payment is an important component of the government's expenditure.

Primary Deficit:
The primary deficit is calculated by subtracting the interest payment from the fiscal deficit. It represents the borrowing requirement of the government excluding the interest payment. In other words, it is the fiscal deficit adjusted for the interest payment. The primary deficit indicates the government's borrowing needs for non-interest expenditure such as defense, infrastructure, social welfare programs, etc.

Importance of Primary Deficit:
The primary deficit is a crucial measure as it helps in understanding the government's ability to meet its non-interest expenses without relying on borrowings. A high primary deficit indicates that the government is borrowing heavily to finance its non-interest expenditure, which can lead to a higher debt burden in the long run. On the other hand, a low primary deficit implies that the government has better control over its non-interest expenditure and is not heavily reliant on borrowings.

Conclusion:
In conclusion, the difference between fiscal deficit and interest payment during the year is called the primary deficit. It is an important measure that helps in assessing the government's borrowing needs for non-interest expenditure. By analyzing the primary deficit, policymakers can evaluate the sustainability of government finances and make necessary adjustments to ensure fiscal discipline.