Which one of the following expenditures is subtracted from Fiscal Defi

Which one of the following expenditures is subtracted from Fiscal Deficit to arrive at Primary Deficit ?

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Defence expenditure

Expenditure on subsidies

Interest payments

Pension

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UPSC CDS-2 – 2023

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Interest payments are subtracted from Fiscal Deficit to arrive at Primary Deficit.

Fiscal Deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowings). It indicates the total borrowing requirement of the government.
Primary Deficit is defined as Fiscal Deficit minus Interest Payments on previous borrowings.
Primary Deficit = Fiscal Deficit – Interest Payments
The primary deficit shows the borrowing requirement of the government excluding the interest burden on accumulated past debt. It reflects the current fiscal stance of the government.

A high primary deficit indicates the extent of fiscal profligacy in the current year, whereas a high fiscal deficit might be due to the interest burden on past debt even if the current year’s primary deficit is low or zero. Reducing interest payments is a key objective for fiscal consolidation, which can be achieved by reducing overall borrowing (and thus the fiscal deficit) over time.

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