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Q61 (IAS/2025) Economy › Government Finance & Budget › Fiscal deficit concepts Answer Verified

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.

Result
Your answer: —  ·  Correct: D
Explanation

All three statements are correct based on the definitions of different budget deficits.

**Statement I is correct:** Revenue Deficit is the difference between the government's revenue expenditure and revenue receipts, calculated as Revenue Expenditure - Revenue Receipts[1]. Therefore, Revenue Deficit = ₹80,000 crores - ₹60,000 crores = ₹20,000 crores.

**Statement II is correct:** Fiscal deficit is equal to the total borrowing[2]. Given that the government's borrowings are ₹10,000 crores, the fiscal deficit is ₹10,000 crores.

**Statement III is correct:** Primary deficit is the fiscal deficit minus the interest payments (Gross primary deficit = Gross fiscal deficit – Net interest liabilities)[3]. Therefore, Primary Deficit = ₹10,000 crores - ₹6,000 crores = ₹4,000 crores.

Since all three statements (I, II, and III) are verified as correct, the answer is option D.

Sources
  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 152
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 153
  3. [3] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad > p. 72
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Q. Suppose the revenue expenditure is ₹ 80,000 crores and the revenue receipts of the Government are ₹ 60,000 crores. The Government budget …
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10

This is a classic 'Sitter' disguised as a math problem. It rewards conceptual clarity over rote learning. If you know the three basic formulas from NCERT Macroeconomics, this is free marks. No current affairs linkage is required; it is pure static theory applied numerically.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
What is the revenue deficit if a government's revenue expenditure is ₹80,000 crore and revenue receipts are ₹60,000 crore?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 152
Presence: 5/5
“When a government spends more than it collects by way of revenue, it incurs a deficit. There are mainly three ways through which government captures this deficit. 1. Revenue Deficit: Revenue Deficit is the difference between the government's revenue expenditure and revenue receipts. Revenue Deficit = Revenue Expenditure - Revenue Receipts Revenue Deficit implies that government's current expenses are more than its current revenues and will have to use up the savings of other sectors of the economy to finance its consumption expenditure. Since a major part of the revenue expenditure (salary, pension, interest payments, subsidies etc.) is committed expenditure, it cannot be reduced.”
Why this source?
  • Defines Revenue Deficit as the difference between revenue expenditure and revenue receipts.
  • Provides the explicit formula: Revenue Deficit = Revenue Expenditure - Revenue Receipts.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 71
Presence: 5/5
“When a government spends more than it collects by way of revenue, it incurs a budget deficit6 . There are various measures that capture government deficit and they have their own implications for the economy. Revenue Deficit: The revenue deficit refers to the excess of government's revenue expenditure over revenue receipts Revenue deficit = Revenue expenditure – Revenue receipts Table 5.1: Receipts and Expenditures of the Central Government, 2023–24 (P.A.) • Col1: 1. Revenue Receipts (a+b); (As per cent of GDP): 9.2 • Col1: (a) Tax revenue (net of states' share); (As per cent of GDP): 7.9 • Col1: (b) Non-tax revenue; (As per cent of GDP): 1.4 • Col1: 2.”
Why this source?
  • Reiterates that revenue deficit refers to excess of revenue expenditure over revenue receipts.
  • Gives the same formulaic expression useful for direct calculation.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > II. Revenue Deficit > p. 110
Presence: 5/5
“• It is the excess of revenue expenditure over revenue receipts.• Revenue Deficit = Revenue Expenditure − Revenue Receipts.• This revenue deficit is funded either through borrowings from the public or through disinvestment or by cutting revenue expenditure (mainly subsidies).”
Why this source?
  • States revenue deficit equals revenue expenditure minus revenue receipts.
  • Notes how such a deficit is typically financed, underscoring practical relevance of the calculation.
Statement 2
What is the fiscal deficit if a government's revenue expenditure is ₹80,000 crore, revenue receipts are ₹60,000 crore, and borrowings are ₹10,000 crore?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 153
Presence: 5/5
“Let us understand fiscal deficit with an example. Suppose, government's total expenditure = 17 lakh crore and receipts = 13 lakh crore Then government will have to borrow (17 lakh crore -13 lakh crore) 4 lakh crores to meet its expenditure. And this 4 lakhs crore is called the fiscal deficit. That is why fiscal deficit is also equal to the total borrowing i.e. 4 lakh crore. But this 4 lakhs crore which government borrowed is also part of capital receipt for the government and it must be included in capital receipts. So, in actual sense, government's total receipts will become 17 lakh crores (i.e., 13 lakh crore + 4 lakh crore borrowing).”
Why this source?
  • Provides an explicit equality: fiscal deficit equals the government's total borrowings in the budgetary sense (example equating deficit to borrowing).
  • Uses the borrowing amount as the observed fiscal shortfall that the government must finance, so fiscal deficit can be read as the given borrowings figure.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 71
Presence: 4/5
“When a government spends more than it collects by way of revenue, it incurs a budget deficit6 . There are various measures that capture government deficit and they have their own implications for the economy. Revenue Deficit: The revenue deficit refers to the excess of government's revenue expenditure over revenue receipts Revenue deficit = Revenue expenditure – Revenue receipts Table 5.1: Receipts and Expenditures of the Central Government, 2023–24 (P.A.) • Col1: 1. Revenue Receipts (a+b); (As per cent of GDP): 9.2 • Col1: (a) Tax revenue (net of states' share); (As per cent of GDP): 7.9 • Col1: (b) Non-tax revenue; (As per cent of GDP): 1.4 • Col1: 2.”
Why this source?
  • Defines revenue deficit as revenue expenditure minus revenue receipts, allowing computation of revenue deficit = 80,000 − 60,000 = 20,000.
  • Distinguishes revenue deficit from other deficit measures, showing that given borrowings may differ from the revenue deficit and that fiscal deficit is a separate concept.
Statement 3
What is the primary deficit if a government's revenue expenditure is ₹80,000 crore, revenue receipts are ₹60,000 crore, borrowings are ₹10,000 crore, and interest payments are ₹6,000 crore?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad > p. 72
Presence: 5/5
“Primary Deficit: We must note that the borrowing requirement of the government includes interest obligations on accumulated debt. The goal of measuring primary deficit is to focus on present fiscal imbalances. To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments Gross primary deficit = Gross fiscal deficit – Net interest liabilities Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending.”
Why this source?
  • Defines primary deficit as fiscal deficit minus interest payments (gross primary deficit = gross fiscal deficit – net interest liabilities).
  • Gives direct formula connecting fiscal deficit and interest payments needed to compute primary deficit.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 153
Presence: 4/5
“Let us understand fiscal deficit with an example. Suppose, government's total expenditure = 17 lakh crore and receipts = 13 lakh crore Then government will have to borrow (17 lakh crore -13 lakh crore) 4 lakh crores to meet its expenditure. And this 4 lakhs crore is called the fiscal deficit. That is why fiscal deficit is also equal to the total borrowing i.e. 4 lakh crore. But this 4 lakhs crore which government borrowed is also part of capital receipt for the government and it must be included in capital receipts. So, in actual sense, government's total receipts will become 17 lakh crores (i.e., 13 lakh crore + 4 lakh crore borrowing).”
Why this source?
  • Provides that fiscal deficit equals the amount the government must borrow (example: expenditure − receipts = borrowing = fiscal deficit).
  • Allows treating the given borrowings (₹10,000 crore) as the fiscal deficit for computation.
Pattern takeaway: UPSC is shifting from 'Definition-based' to 'Application-based' static questions. They won't just ask 'What is Fiscal Deficit?'; they will give you a simplified balance sheet to see if you can identify it in practice. This filters out candidates who memorize definitions without understanding the accounting identity.
How you should have studied
  1. [THE VERDICT]: Absolute Sitter. Direct application of formulas from NCERT Class XII Macroeconomics (Chapter 5: Government Budget and the Economy).
  2. [THE CONCEPTUAL TRIGGER]: Public Finance > Government Deficits. Specifically, the distinction between 'consumption' gaps (Revenue Deficit) and 'borrowing' requirements (Fiscal Deficit).
  3. [THE HORIZONTAL EXPANSION]: Master the hierarchy: Effective Revenue Deficit (RD minus Grants for Capital Assets), Monetized Deficit (Borrowing from RBI), Budget Deficit (Total Exp minus Total Receipts, now obsolete), and the NK Singh Committee targets (Debt-to-GDP ratio).
  4. [THE STRATEGIC METACOGNITION]: Do not fear numbers in Economy papers. UPSC uses simple arithmetic to test definitions. The moment you see 'Borrowings', your reflex should be 'Fiscal Deficit'. The moment you see 'Interest Payments', your reflex should be 'Primary Deficit'.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Revenue Deficit — definition and formula
💡 The insight

Revenue deficit is computed as revenue expenditure minus revenue receipts, enabling direct numerical calculation.

High-yield for budget analysis questions: mastering this formula allows quick computation and comparison of fiscal indicators. It connects to topics on fiscal health, budgetary classification, and government borrowing, and enables numerical questions and conceptual interpretation in GS and economy papers.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 152
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 71
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > II. Revenue Deficit > p. 110
🔗 Anchor: "What is the revenue deficit if a government's revenue expenditure is ₹80,000 cro..."
📌 Adjacent topic to master
S1
👉 Financing and implications of a revenue deficit
💡 The insight

A revenue deficit implies current (committed) expenditures exceed current revenues and must be financed by borrowings, disinvestment, or cutting expenditure.

Important for policy-analysis answers: explains why running a revenue deficit affects debt, crowding out, and the need to prioritize capital spending. Useful for questions on fiscal consolidation, macroeconomic impact, and budgetary reforms.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 152
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > II. Revenue Deficit > p. 110
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 72
🔗 Anchor: "What is the revenue deficit if a government's revenue expenditure is ₹80,000 cro..."
📌 Adjacent topic to master
S1
👉 Revenue receipts vs capital receipts (budget classification)
💡 The insight

Revenue receipts are non-redeemable current receipts and are the comparator in the revenue deficit formula.

Essential for correctly classifying budget items and answering questions on receipts/expenditure composition; helps distinguish revenue deficit from fiscal or primary deficit and supports accurate computation and interpretation.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.4 Budget Classification > p. 151
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 152
🔗 Anchor: "What is the revenue deficit if a government's revenue expenditure is ₹80,000 cro..."
📌 Adjacent topic to master
S2
👉 Fiscal deficit equals government borrowings
💡 The insight

Fiscal deficit is represented by the amount the government needs to borrow to meet expenditure shortfall, so the borrowing figure can be read as the fiscal deficit.

High-yield for budget questions: it lets aspirants convert a stated borrowing figure directly into fiscal deficit when no other capital items are given. Connects to public debt and financing instruments and helps answer numerical and conceptual questions on budget balance.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 153
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 72
🔗 Anchor: "What is the fiscal deficit if a government's revenue expenditure is ₹80,000 cror..."
📌 Adjacent topic to master
S2
👉 Revenue deficit = Revenue expenditure − Revenue receipts
💡 The insight

The statement supplies revenue expenditure and receipts, so this formula gives the revenue deficit (80,000 − 60,000 = 20,000).

Essential for distinguishing current fiscal pressures from overall fiscal balance. Mastery helps tackle questions on composition of deficits, implications for capital formation, and financing choices.

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 71
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > II. Revenue Deficit > p. 110
🔗 Anchor: "What is the fiscal deficit if a government's revenue expenditure is ₹80,000 cror..."
📌 Adjacent topic to master
S2
👉 Difference between revenue deficit and fiscal deficit
💡 The insight

Revenue deficit measures excess of current expenditure over receipts, while fiscal deficit is the overall borrowing requirement — these can differ numerically.

Crucial for UPSC: many questions probe whether borrowings finance revenue or capital spending. Understanding both concepts clarifies policy implications and financing routes (market borrowings, non-debt receipts).

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > 5.2.1 Measures of Government Deficit > p. 71
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.5 Government Deficits > p. 153
🔗 Anchor: "What is the fiscal deficit if a government's revenue expenditure is ₹80,000 cror..."
📌 Adjacent topic to master
S3
👉 Primary deficit formula
💡 The insight

Primary deficit is calculated as fiscal deficit less interest payments on past debt.

High-yield for fiscal arithmetic questions: mastering this lets aspirants separate current fiscal imbalance from interest servicing and compute policy-relevant deficits. It links directly to fiscal sustainability discussions and budget analysis questions.

📚 Reading List :
  • Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad > p. 72
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > V. Primary Deficit > p. 111
🔗 Anchor: "What is the primary deficit if a government's revenue expenditure is ₹80,000 cro..."
🌑 The Hidden Trap

Effective Revenue Deficit (ERD). Since they asked RD, FD, and PD here, the next logical sibling is ERD. Formula: Revenue Deficit − Grants in Aid for Creation of Capital Assets. Also, watch out for 'Primary Surplus' (when Tax revenues > Non-interest spending).

⚡ Elimination Cheat Code

Mathematical Consistency Check: Primary Deficit (PD) is Fiscal Deficit (FD) minus Interest. Therefore, PD must mathematically be smaller than FD (assuming positive interest). If any option suggested PD > FD, you could eliminate it instantly. Also, recognize the identity: Fiscal Deficit IS the Borrowing requirement. If Borrowings = 10k, FD must be 10k.

🔗 Mains Connection

Mains GS-3 (Government Budgeting & Fiscal Policy): A high Revenue Deficit (Statement I) implies the government is borrowing to fund daily consumption (salaries/pensions), which violates the 'Golden Rule of Fiscal Policy'. This leads to a Debt Trap and intergenerational inequity.

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SIMILAR QUESTIONS

CDS-II · 2017 · Q76 Relevance score: 1.67

Match List-I with List-II and select the correct answer using the code given below the Lists : List-I List-n (Type of Deficit) (Explanation) A. Fiscal Deficit 1. Total Expenditure - Revenue Receipts 8s Non-debt Capital Receipts B. Revenue Deficit 2. Revenue Expenditure -Revenue Receipts C. Effective Revenue 3. Revenue Deficit -Deficit Grants for Creation of Capital Assets D. Primary Deficit 4. Fiscal Deficit - Interest Payments Code :

IAS · 1995 · Q31 Relevance score: 1.15

Which of the following are among the non-plan expenditures of the Government of India ? I. Defence expenditure II. Subsidies III. All expenditures linked with the previous plan periods IV. Interest payment Choose the correct answer from the codes given below : Codes :

CDS-II · 2024 · Q13 Relevance score: 0.09

Which one among the following items comprises the major portion of revenue expenditure of the Union Government of India? (a) Salaries (b) Interest Payments (c) Road Transport and Highways (d) Defence Services