Net interest liabilities
Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 12, Ch 5 "Government Budget and the Economy"
Meaning
Net interest liabilities are the interest the government pays minus the interest it earns on its own lending within the country.
Net interest liabilities = Interest payments − Interest receipts on net domestic lending
NCERT uses this to calculate the primary deficit: PD = Fiscal deficit − Net interest liabilities. Removing interest on past debt shows the current fiscal gap. Budget documents use a simpler version that subtracts total interest payments.
Example
Say the Centre pays ₹100 crore in interest and earns ₹20 crore in interest on loans it gave to states and PSUs. Its net interest liabilities are ₹80 crore. If the fiscal deficit is ₹300 crore, the primary deficit (NCERT method) is ₹220 crore.
Don't confuse with
- Interest payments: the gross figure, with no interest receipts subtracted. Budget practice uses it. For example, in 2023-24, PD = 5.6 − 3.6 = 2.0% of GDP.
Related concepts
- Balanced budget
- Surplus budget
- Budget deficit
- Revenue deficit
- Effective revenue deficit
- Fiscal deficit
- Primary deficit
- Government dissaving
- Quality of government expenditure