Fiscal Deficit and Primary Deficit

Fiscal Deficit is the most widely quoted deficit measure, because it captures the government's total borrowing requirement for the year:

Here, Total Expenditure = Revenue Expenditure + Capital Expenditure, and Non-debt Capital Receipts are the capital receipts that do NOT create a liability — recovery of loans and disinvestment proceeds (borrowings themselves are deliberately excluded from the receipts side of this formula, since fiscal deficit is defined as exactly the gap that borrowing must fill).

An equivalent and very useful way to see this: Fiscal Deficit = Total Borrowings and Other Liabilities the government must take on during the year. Whatever gap is left after revenue receipts and non-debt capital receipts have been counted must be plugged by fresh borrowing — so the fiscal deficit figure directly tells us how much new debt the government is taking on in that one year. A large and persistently rising fiscal deficit is a serious macroeconomic concern: it raises the government's total outstanding debt, raises future interest obligations (crowding out other, more productive spending in later budgets), and — if financed by printing money — can also fuel inflation.

Primary Deficit refines the fiscal deficit further, by removing the part of borrowing that is only needed to pay interest on debt already taken in the past:

$\text{Primary Deficit} = \text{Fiscal Deficit} - \text{Interest Payments}$ …