Definition: The Primary Deficit is the difference between the fiscal deficit of current year and the interest paid on the previous borrowings. Thus, primary deficits are government’s borrowings exclusive of interest payment.
Generally, the loan raised by the government is inclusive of the interest amount, and if that amount is deducted from the principal loan amount, the balance amount is called as the primary deficit. The purpose of measuring such deficit is to know the amount of borrowings that government can utilize in the expenses other than the interest payments.
Symbolically, it can be represented as:
Primary Deficit = Fiscal Deficit – Interest payments on the previous borrowings
In case, the primary deficit is zero; then the fiscal deficit becomes equal to the interest payment, which means government resort to borrowings just to pay off the interest payments. Thus, the low or zero primary deficits indicate that the government was forced to resort to the external borrowings to meet out its previous interest obligations, and nothing gets added to the existing loan.
HARI CHARAN says