Primary deficit includes interest payment on previous borrowings.a)Trueb)Falsec)Partially trued)Cant sayCorrect answer is option 'B'. Can you explain this answer?

Question

Answer

Primary deficit excludes interest payments on previous loans.

Answer

Explanation:

Primary deficit:
- The primary deficit is the fiscal deficit excluding interest payments on previous borrowings.
- It represents the excess of government expenditure over government revenue, excluding interest payments.
- It is a crucial measure of a government's financial health as it shows how much the government is borrowing to fund its expenses other than interest payments.

Interest payment on previous borrowings:
- Interest payments on previous borrowings are not included in the primary deficit.
- These payments represent the cost of servicing the debt that the government has accumulated over time.
- Including interest payments in the deficit would distort the true picture of the government's current fiscal position.

Relation to the primary deficit:
- By excluding interest payments, the primary deficit focuses on the government's ongoing expenses and revenue without the burden of past debt.
- This provides a clearer indication of the government's ability to meet its current obligations and manage its finances efficiently.

Therefore, the statement that the primary deficit includes interest payments on previous borrowings is false. Interest payments are excluded from the primary deficit calculation to provide a more accurate measure of the government's fiscal health.

Similar Class 12 Doubts

_______ deficit includes interest payment by the government on the past loans.

The formula to calculate primary deficit is _______

Choose the correct statement from given below

If borrowings and other liabilities are reduced to the budget deficit, we get

Fiscal deficit and borrowings are one or the same thing.

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