Union Budget & Fiscal Deficit — Set 13

Correct Answer: B. B. Binding on the government through Constitutional provisions

Finance Commission recommendations on tax devolution and grants are effectively binding — once the President lays the report before Parliament and the Government accepts the recommendations, they are implemented through budget appropriations. While technically the recommendations are not legally enforceable, constitutional convention and political practice require the government to accept and implement them. No Finance Commission recommendation has been wholly rejected.

Correct Answer: C. C. Payment of teacher salaries in government schools

Revenue expenditure is spending on recurring, non-asset-creating activities. Payment of teacher salaries, pensionspayments, subsidies, and interest payments are all revenue expenditure. Construction of a highway, purchase of aircraft (capital asset for military), and building of a dam are Capital Expenditure as they create tangible assets. The distinction between revenue and capital expenditure determines the revenue deficit and quality of fiscal management.

Correct Answer: D. D. Construction of port infrastructure by central government

Capital expenditure creates assets or reduces liabilities. Construction of port infrastructure, roads, bridges, government buildings, schools, and hospitals are all capital expenditure as they create tangible assets. Paying interest on debt, salaries, and subsidies are revenue expenditures as they do not create assets. Higher quality fiscal management requires that borrowings fund capital expenditure, not revenue expenditure.

Correct Answer: C. C. Distribution of tax proceeds between Centre and States, and grants-in-aid to States

The Finance Commission (Article 280) recommends: (1) The distribution of net proceeds of Union taxes between the Centre and States (vertical devolution); (2) Allocation among states of the states' share (horizontal devolution); (3) Principles governing grants-in-aid from Centre to States under Article 275; and (4) Any other matter in the interest of sound finance. Its recommendations cover the entire fiscal transfer framework between Centre and States.

Correct Answer: A. A. ₹4 lakh crore

Revenue Deficit = Revenue Expenditure − Revenue Receipts = ₹24 lakh crore − ₹20 lakh crore = ₹4 lakh crore. This means the government spent ₹4 lakh crore more on current operations than it earned from current income. This deficit must be financed by borrowings, which means the government is using borrowed money for consumption rather than investment — reducing future fiscal space.

Correct Answer: B. B. Fiscal stimulus (expansion) — increased spending, relaxed FRBM targets

During COVID-19 (2020-21 and 2021-22), India adopted fiscal stimulus — significantly increasing government expenditure on healthcare, relief measures, food distribution, and infrastructure while allowing FRBM targets to be overrun. The fiscal deficit reached 9.3% of GDP in 2020-21 (vs FRBM target of 3.5%). The FRBM escape clause was invoked. Fiscal consolidation resumed from 2021-22 onwards as economic recovery strengthened.

Correct Answer: B. B. Detailed breakdown of all receipts — tax, non-tax, capital receipts — including notes on trends

The Receipts Budget is a detailed statement of all government receipts presented with the Union Budget. It provides a breakdown of Revenue Receipts (major taxes, minor taxes, non-tax revenues) and Capital Receipts (borrowings, disinvestment, loans recovered), along with notes explaining trends and year-over-year changes. It is an essential document for understanding the government's revenue mobilisation strategy.

Correct Answer: B. B. Scheme-wise and ministry-wise detailed allocation of government expenditure

The Expenditure Budget provides a detailed ministry-wise and scheme-wise breakdown of all Central Government expenditure — both revenue and capital, both voted and charged. It includes details of major schemes and their allocations, enabling scrutiny of spending priorities. This is the most comprehensive budget document and runs into multiple volumes covering all Central government ministries.

Correct Answer: B. B. A higher tax-GDP ratio means more revenue, potentially reducing the need to borrow (fiscal deficit)

A higher Tax-GDP ratio means the government collects more revenue relative to the size of the economy, reducing its dependence on borrowings and thus potentially lowering the fiscal deficit. Countries with higher tax-to-GDP ratios (Scandinavia, European nations) can maintain lower fiscal deficits while providing extensive public services. India's relatively low Tax-GDP ratio is a structural constraint on fiscal management.

Correct Answer: D. D. No formal committee — decision by the government

The change in Budget presentation date from the last day of February to February 1 was a decision taken by the Government of India (under Finance Minister Arun Jaitley) without a specific committee recommendation. The rationale was to complete budget passage before the start of the financial year (April 1) so that spending and schemes could begin promptly. This was also aligned with ending the Plan-Non-Plan classification.