The primary deficit (PD) is apparently a cause of worry as it is phenomenally higher than the budget estimates (BE) for the financial year 2020-21.
According to information, the PD has been on the higher side since June 2020. It was noticed that PD was ₹29,263 crore in June itself while the BE for the entire year was ₹27,912.39 crore. Since then, the PD has been on the rise and peaked at ₹61,741.68 crore in November, 2020. It was ₹55,129 crore in December, 2020 and ₹58,781 crore in January, 2021.
In fact, the PD has remained more the BE throughout the year. Also, the actuals of primary deficit in the current fiscal have been much higher than all months in the last financial year. The PD to the BE is 210.59% in January, 2021. It is 184.72% in the corresponding period in 2019-20. Similarly, the PD to BE was 197.51% in December, 2020 (financial year 2020-21) and 164.47% in 2019-20 financial year.
Primary deficit is the difference between the fiscal deficit of the current year and the interest paid by the government on loans obtained in the past. What it indicates is that the government’s borrowings are utilised to pay the interest on loans rather than on capital expenditure. The rise in the primary deficit is not the sign of a healthy economy. It means the government is spending more on interest payments instead of creating wealth, sources say.
When asked whether the rise in primary deficit was due to the payment of interest on the loans borrowed by the government, Finance Minister Buggana Rajendranath Reddy said, “The government did borrow the loans to continue the welfare schemes and help the poor and middle class.”
Rising since bifurcation
The primary deficit has been on the rise ever since the State’s bifurcation in 2014. The interest payments have increased phenomenally during the last five years. The primary deficit was ₹12,014 crore in 2015-16. It rose to ₹19,211.46 crore in 2016-17. It was ₹18,525 crore in 2017-18 and touched ₹20,098 crore in 2018-19. The revised estimate for the financial year 2019-20 is ₹24,100 crore. The government estimated that the primary deficit will be ₹27,912 crore during the current fiscal.
“Any borrowing or loan that does not lead to creation of assets, or reduction in liabilities, will not help the economy in the long run,” opines an official, who didn’t want to be named.
