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Fiscal, Revenue and Primary Deficits: Reading the Budget — MCQs with Answers

Test what you know about Fiscal, Revenue and Primary Deficits: Reading the Budget with 10 UPSC Prelims-style questions. Try each one first, then tap “Show answer” for the correct option and its explanation.

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  • 10 practice questions
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  1. Q1. The government receives repayment of the principal on a loan it had earlier advanced. How is this receipt classified?

    1. Non-debt capital receipt
    2. Tax revenue
    3. Non-tax revenue
    4. Debt capital receipt
    Show answer

    Correct answer: (A) Non-debt capital receipt

    Explanation

    Correct Answer: (A). Recovery of loan principal reduces a financial asset held by the government without creating new debt, making it a non-debt capital receipt. It is not a tax. Interest received on the loan would be non-tax revenue, while fresh borrowing would be a debt capital receipt.

  2. Q2. A hypothetical budget has total expenditure of ₹1,000 crore, excluding debt principal repayment, revenue receipts of ₹750 crore and non-debt capital receipts of ₹50 crore. What is its fiscal deficit?

    1. ₹250 crore
    2. ₹200 crore
    3. ₹300 crore
    4. ₹800 crore
    Show answer

    Correct answer: (B) ₹200 crore

    Explanation

    Correct Answer: (B). Fiscal deficit is total expenditure minus revenue receipts and non-debt capital receipts: 1,000 minus 750 minus 50 equals ₹200 crore. The ₹250 crore figure ignores non-debt capital receipts, ₹300 crore adds them incorrectly, and ₹800 crore represents total non-debt receipts rather than the gap.

  3. Q3. Consider the following statements: 1. Primary deficit is fiscal deficit minus interest payments. 2. Zero primary deficit can coexist with outstanding government debt. Which of the statements given above is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Show answer

    Correct answer: (C) Both 1 and 2

    Explanation

    Correct Answer: (C). Both statements are correct. Primary deficit removes interest payments from fiscal deficit. When the result is zero, fiscal deficit equals interest payments; it need not itself be zero. Outstanding debt is a stock and can remain even when this particular annual balance is zero.

  4. Q4. Which condition allows a revenue surplus to coexist with a fiscal deficit?

    1. Revenue expenditure exceeds revenue receipts
    2. Non-debt capital receipts exceed all expenditure
    3. Capital expenditure is zero and non-debt capital receipts are positive
    4. Capital expenditure exceeds the revenue surplus plus non-debt capital receipts
    Show answer

    Correct answer: (D) Capital expenditure exceeds the revenue surplus plus non-debt capital receipts

    Explanation

    Correct Answer: (D). Fiscal deficit equals capital expenditure minus the revenue surplus and non-debt capital receipts when a revenue surplus exists. A positive remaining gap produces a fiscal deficit. Excess revenue expenditure would instead imply a revenue deficit; the other two conditions would not leave the required positive financing gap.

  5. Q5. Effective revenue deficit is calculated by subtracting which item from revenue deficit?

    1. Grants for creation of capital assets
    2. All capital expenditure
    3. All grants regardless of purpose
    4. Interest payments
    Show answer

    Correct answer: (A) Grants for creation of capital assets

    Explanation

    Correct Answer: (A). Effective revenue deficit subtracts qualifying grants for creation of capital assets from revenue deficit. It recognises that recipients create assets using some grants booked as revenue expenditure. All capital expenditure or all grants cannot be substituted. Subtracting interest payments from fiscal deficit gives primary deficit, a different measure.

  6. Q6. Consider the following pairs: 1. Annual fiscal deficit — Flow over a period 2. Outstanding government debt — Stock at a date 3. Gross borrowing — Necessarily identical to fiscal deficit Which of the pairs given above are correctly matched?

    1. 1 and 3 only
    2. 1 and 2 only
    3. 2 and 3 only
    4. 1, 2 and 3
    Show answer

    Correct answer: (B) 1 and 2 only

    Explanation

    Correct Answer: (B). Pairs 1 and 2 correctly distinguish a flow from a stock. Pair 3 is incorrect because gross borrowing may also refinance maturing debt, apart from financing the current gap. A period deficit, an outstanding liability stock and gross borrowing therefore should not be treated as interchangeable quantities.

  7. Q7. A hypothetical deficit rises from ₹100 crore to ₹110 crore while nominal GDP rises from ₹2,000 crore to ₹2,500 crore. Which interpretation is correct?

    1. Both the rupee deficit and its GDP ratio fall
    2. The ratio remains unchanged at 5%
    3. The rupee deficit rises but the ratio falls from 5% to 4.4%
    4. The ratio rises because the rupee deficit rises
    Show answer

    Correct answer: (C) The rupee deficit rises but the ratio falls from 5% to 4.4%

    Explanation

    Correct Answer: (C). The original ratio is 100 divided by 2,000, or 5%. The new ratio is 110 divided by 2,500, or 4.4%. GDP grows proportionately faster than the deficit, so the ratio falls even though the rupee amount rises. The denominator must be considered alongside the numerator.

  8. Q8. Assertion (A): Revenue expenditure is necessarily wasteful. Reason (R): Teachers’ salaries and maintenance of health facilities can support valuable public outcomes. Select the correct answer.

    1. Both A and R are true, and R correctly explains A
    2. Both A and R are true, but R does not correctly explain A
    3. A is true, but R is false
    4. A is false, but R is true
    Show answer

    Correct answer: (D) A is false, but R is true

    Explanation

    Correct Answer: (D). The assertion is false because an accounting classification does not establish that expenditure is wasteful. The reason is true: salaries supporting education and maintenance supporting health services can be valuable. Likewise, capital classification alone does not prove a project was efficiently selected, completed or used.

  9. Q9. Consider the following statements about borrowing: 1. Borrowing is excluded from the receipts used to calculate fiscal deficit. 2. Borrowing finances the gap rather than becoming revenue that eliminates it. Which of the statements given above is/are correct?

    1. Both 1 and 2
    2. 1 only
    3. 2 only
    4. Neither 1 nor 2
    Show answer

    Correct answer: (A) Both 1 and 2

    Explanation

    Correct Answer: (A). Both statements are correct. Fiscal deficit is calculated before debt-creating receipts are included as financing. Counting borrowing as ordinary revenue would conceal the very gap being measured. Borrowing creates a liability, unlike revenue receipts, so receiving cash through a loan does not eliminate the measured fiscal deficit.

  10. Q10. Which statement correctly interprets the Union Budget estimate of a 4.3% fiscal deficit for 2026–27?

    1. It is the final actual deficit of the Centre and all states combined
    2. It is a Union government budget projection relative to GDP, not the completed-year actual outcome
    3. It proves that the rupee deficit must be lower than in every earlier year
    4. It is the outstanding government debt as a share of GDP
    Show answer

    Correct answer: (B) It is a Union government budget projection relative to GDP, not the completed-year actual outcome

    Explanation

    Correct Answer: (B). The figure is a Budget Estimate for the Union government and is expressed relative to GDP. It is not a completed-year actual, a combined Centre-and-states measure or a debt-stock ratio. A percentage alone also cannot establish whether the rupee deficit is lower than in other years.

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