Union Budget & Fiscal Deficit — Set 6

Correct Answer: B. B. National calamity, security emergency, or severe economic downturns

The escape clause under the revised FRBM framework (as amended in 2018) allows the government to deviate from the mandated fiscal deficit path by up to 0.5 percentage points in cases of national calamity, security emergency, structural reforms resulting in revenue loss, decline in real output growth below a trigger level, or other exceptional circumstances notified by the government.

Correct Answer: C. C. 60% by 2022-23

The NK Singh Committee on FRBM Review (2017) recommended a total (Centre + States) debt-to-GDP ceiling of 60% by 2022-23 (40% for Centre, 20% for States). This target was modelled on international norms. The Maastricht Treaty ceiling of 60% was taken as a reference. India's actual combined debt-to-GDP ratio has been significantly higher due to COVID-19 pandemic spending.

Correct Answer: C. C. Medium Term Fiscal Policy Statement

The Medium Term Fiscal Policy (MTFP) Statement is a rolling three-year statement of the fiscal deficit and revenue deficit targets, presented as part of the Budget documents under the FRBM Act. It provides a medium-term fiscal framework (three years) showing how the government plans to achieve its fiscal consolidation targets. This gives a forward-looking picture of fiscal management.

Correct Answer: B. B. Government borrowings driving up interest rates and reducing private investment

The crowding out effect occurs when heavy government borrowing from financial markets drives up interest rates, making borrowing more expensive for the private sector and reducing private investment. High fiscal deficits financed through domestic borrowings can thus hurt private sector investment. This is why controlling the fiscal deficit is important for sustaining private capital formation.

Correct Answer: B. B. GDP growth, fiscal balances, and monetary conditions prospects

The Macroeconomic Framework Statement, presented with the Union Budget under the FRBM Act, provides the Central Government's assessment of the short-term and medium-term macroeconomic outlook including GDP growth prospects, fiscal deficit, revenue deficit, and monetary conditions. It contextualises the budget within the broader macroeconomic environment and provides the basis for fiscal projections.

Correct Answer: B. B. Article 265

Article 265 of the Indian Constitution states that 'no tax shall be levied or collected except by authority of law.' This provision ensures that the executive cannot impose or collect taxes without Parliamentary approval. All tax laws must be backed by legislation passed by Parliament or State Legislatures, ensuring taxation without representation does not occur.

Correct Answer: B. B. Only Lok Sabha

A Money Bill (which includes provisions for taxation, expenditure from Consolidated Fund, borrowing) can be introduced only in the Lok Sabha, not in the Rajya Sabha. Article 110 of the Constitution defines Money Bills. The Rajya Sabha can only make recommendations on Money Bills (not amendments) and if not acted upon within 14 days, the Bill is deemed passed.

Correct Answer: C. C. Money Bill

The Finance Bill, which contains proposals for taxation changes, is classified as a Money Bill under Article 110 of the Constitution. As a Money Bill, it can only be introduced in the Lok Sabha. The Rajya Sabha's role is advisory — it can recommend changes but cannot amend or reject a Money Bill. This gives the elected lower house final authority over fiscal measures.

Correct Answer: C. C. Chief Economic Adviser, Ministry of Finance

The Economic Survey is released by the Chief Economic Adviser (CEA) in the Ministry of Finance, typically a day before the Union Budget. It provides a comprehensive overview of the Indian economy, including analysis of macroeconomic trends, sector performance, and policy recommendations. The CEA traditionally has significant academic freedom in the Survey's analysis.

Correct Answer: C. C. 2017-18

The distinction between Plan Expenditure (linked to Five-Year Plans) and Non-Plan Expenditure was abolished from the Union Budget 2017-18, following a recommendation by the Rangarajan Committee and in the context of NITI Aayog replacing the Planning Commission. Expenditure is now classified only as Revenue Expenditure and Capital Expenditure, which is more meaningful and transparent.