UPSC Prelims 2025 Q61: Revenue, Fiscal & Primary Deficit — Explained

Suppose the revenue expenditure is ₹ 80,000 crores and the revenue receipts of the Government are ₹ 60,000 crores. The Government budget also shows borrowings of ₹ 10,000 crores and interest payments of ₹ 6,000 crores. Which of the following statements are correct?

I. Revenue deficit is ₹ 20,000 crores.

II. Fiscal deficit is ₹ 10,000 crores.

III. Primary deficit is ₹ 4,000 crores.

Select the correct answer using the code given below.

  1. I and II only
  2. II and III only
  3. I and III only
  4. I, II and III

Answer: (d) I, II and III

Statement-wise explanation

  • I: correct — Revenue deficit = revenue expenditure − revenue receipts. Here that is ₹80,000 crore − ₹60,000 crore = ₹20,000 crore. Borrowings and interest are not needed for this step.
  • II: correct — Fiscal deficit is the gap between total expenditure and total receipts excluding borrowings. The government fills that gap by borrowing, so the fiscal deficit equals the government's borrowing (and other liabilities) for the year. The budget shows borrowings of ₹10,000 crore, so the fiscal deficit is ₹10,000 crore.
  • III: correct — Primary deficit = fiscal deficit − interest payments. Here that is ₹10,000 crore − ₹6,000 crore = ₹4,000 crore. It shows how much of this year's borrowing goes to things other than interest on past debt.

How to eliminate

The three statements test three formulas, and each figure needs only one subtraction. Statement I uses the two revenue figures. Statement II uses the rule that fiscal deficit equals borrowing. Statement III takes interest away from the fiscal deficit. No option gives fewer than two statements, so the question really asks whether any one formula fails. Some candidates reject Statement II because the fiscal deficit (₹10,000 crore) is smaller than the revenue deficit (₹20,000 crore), which almost never happens in a real Indian budget. It is still possible if non-debt capital receipts, such as disinvestment or loan recoveries, exceed capital expenditure by ₹10,000 crore. That is consistent with the data given. Remember two rules: fiscal deficit = borrowings, and primary deficit = fiscal deficit − interest payments. With those, you can solve every deficit-arithmetic question without guessing.

Know more

Four deficit measures in the Union Budget

Measure Formula What it tells you
Revenue deficit (RD) Revenue expenditure − Revenue receipts Borrowing used for day-to-day spending (salaries, subsidies, interest), not for building assets
Effective revenue deficit (ERD) RD − Grants for creation of capital assets The part of RD that does not end up as assets, even through states or agencies
Fiscal deficit (FD) Total expenditure − (Revenue receipts + Non-debt capital receipts) = Borrowings and other liabilities The government's total borrowing need for the year
Primary deficit (PD) FD − Interest payments Borrowing needed for this year's policies, leaving out the cost of old debt

How they link. FD = RD + Capital expenditure − Non-debt capital receipts. Non-debt capital receipts are recovery of loans plus disinvestment and other receipts. Usually capital expenditure is far larger, so FD is well above RD. A primary deficit of zero means the government borrows only to pay interest on its past debt. A primary surplus means some old debt is being repaid.

Budget 2025-26 (BE), Union government:

  • Fiscal deficit: ₹15,68,936 crore (4.4% of GDP)
  • Revenue deficit: ₹5,23,846 crore (1.5% of GDP)
  • Primary deficit: ₹2,92,598 crore (0.8% of GDP)

The gap between FD and PD is about ₹12.76 lakh crore of interest payments, roughly a quarter of total expenditure. That is why interest is the biggest single item of revenue expenditure.

FRBM link. The FRBM Act, 2003 (amended in 2018) first set targets for the fiscal and revenue deficits. It now uses public debt as the main anchor. The Centre's fiscal deficit target was 4.4% of GDP for 2025-26. From 2026-27, the target is a declining debt-to-GDP path.

NCERT Concepts to Revise

  • Revenue deficit: Statement I asks you to compute this measure from the revenue expenditure and revenue receipts given.
  • Fiscal deficit: Statement II depends on how this measure relates to the government's borrowings for the year.
  • Primary deficit: Statement III depends on how interest payments are treated in this deficit measure.
  • Effective revenue deficit: A related revenue-side measure UPSC often sets beside revenue deficit; it helps you keep the definitions apart.
  • Public debt: Each year's borrowing adds to public debt, and interest on that stock drives the gap between two of these measures.

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