Definition
Primary Deficit
The primary deficit is the fiscal deficit minus interest payments on past borrowings, showing the borrowing the government would need even if it had no legacy debt to service.
In the Indian Budget, the fiscal deficit lumps together fresh spending and the interest bill on debt accumulated over decades. Stripping out interest payments gives the primary deficit, which isolates how much of today's borrowing is due to current-year choices rather than the burden of the past.
A shrinking primary deficit — or a primary surplus — signals that the government's underlying finances are stabilising and that debt is being driven mainly by interest rather than new imbalances. Economists watch it closely because a persistent primary deficit means the debt-to-GDP ratio tends to keep rising on its own.
Related terms
- Revenue DeficitThe revenue deficit is the excess of the government's revenue expenditure over its revenue receipts, indicating that day-to-day running costs are being met partly through borrowing.
- FRBM ActThe Fiscal Responsibility and Budget Management Act is the law that commits the central government to fiscal discipline by setting targets for deficits and public debt.
- Fiscal DeficitThe fiscal deficit is the gap between the government's total spending and its total revenue, showing how much it must borrow in a year.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.