Question : What does Zero primary deficit indicates:
Option 1: The fiscal deficit is zero
Option 2: Government has to resort borrowings only to meet interest payments
Option 3: No interest payments
Option 4: No borrowings requirement
Correct Answer: Government has to resort borrowings only to meet interest payments
Solution : The correct answer is (b). Government has to resort to borrowings only to meet interest payments.
When the term "zero primary deficit" is used, it means that the government's primary budget deficit is zero. The primary deficit refers to the difference between the government's total expenditures, excluding interest payments on its debt, and its total revenue or income.
The government's revenue is insufficient to cover both its regular expenses and the interest it owes on its existing debt. This situation necessitates borrowing to finance the interest payments.
It's important to note that even with a zero primary deficit, the government may still have an overall fiscal deficit if the interest payments on its debt exceed the revenue generated. The primary deficit is a measure that focuses on the government's spending and revenue excluding interest payments.
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