All questions of Indian Fiscal System for UPSC CSE Exam

The category of dairy products?

1. Milk
2. Cheese
3. Yogurt
4. Butter
5. Cream
6. Ice cream
7. Sour cream
8. Cottage cheese
9. Whey protein powder
10. Condensed milk.

Concept Explanation:
The concept of Effective Revenue Deficit is used to measure the revenue deficit after deducting grants for the creation of capital assets. It provides a more accurate picture of the revenue deficit by excluding grants that are used for capital expenditures.

Revenue Deficit:
Revenue deficit refers to the excess of revenue expenditure over revenue receipts. It indicates that the government is not able to meet its current expenses through its current revenue sources. Revenue deficit represents the borrowing by the government to finance its current expenses.

Grants for Creation of Capital Assets:
Grants for the creation of capital assets are funds provided by the government for the development of infrastructure and other capital projects. These grants are used for long-term investments and are not considered as revenue expenditure. They are used to create assets that will generate income or provide services in the future.

Effective Revenue Deficit:
Effective revenue deficit is calculated by deducting grants for the creation of capital assets from the revenue deficit. This helps in assessing the true revenue deficit of the government by excluding the capital expenditure component from the revenue deficit.

Example:
Let's consider an example to understand this concept better. Suppose the revenue deficit of the government is Rs. 100 crore and grants for the creation of capital assets are Rs. 50 crore. In this case, the effective revenue deficit would be Rs. 50 crore (Rs. 100 crore - Rs. 50 crore).

Significance:
The concept of effective revenue deficit is important as it provides a more accurate measure of the revenue deficit. It helps in identifying the extent to which the government is relying on borrowings to finance its current expenses, excluding the capital expenditure component. This measure is particularly useful for assessing the sustainability of the government's fiscal position and its impact on the economy.

Conclusion:
In conclusion, the concept of effective revenue deficit is used to measure the revenue deficit after deducting grants for the creation of capital assets. It provides a more accurate picture of the revenue deficit by excluding grants used for capital expenditures. This measure helps in assessing the true revenue deficit and the government's reliance on borrowings to finance its current expenses.

Market Borrowing:
Market borrowing is a debt creating capital receipt because it involves borrowing money from the financial markets by issuing bonds or securities. This type of borrowing creates a liability for the government as it has to repay the borrowed amount along with interest in the future.

Disinvestment Proceed from PSU:
Disinvestment proceeds from PSU are not considered a debt creating capital receipt. It is a non-debt capital receipt as it involves selling the government's stake in public sector undertakings (PSUs) to raise funds. This does not create any additional debt for the government.

Interest Received:
Interest received is not a capital receipt, it is a revenue receipt. It represents income earned by the government on its investments or loans given to other entities. It does not involve borrowing or creating any debt.

Loan Recovery:
Loan recovery is also not a debt creating capital receipt. It involves the repayment of loans given by the government to other entities. It is a recovery of funds previously lent out by the government and does not create any new debt.

Explanation:

Fiscal policy refers to the use of government spending and taxation to influence the economy. In India, there are several fiscal policy tools that are used to manage the economy. Among the options given, the correct ones are:

1. Goods and Services Tax (GST):
The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services in India. It is a fiscal policy tool because it affects both government revenue and consumer spending. By adjusting the GST rates, the government can influence the prices of goods and services, which in turn affects consumption and investment.

3. Corporate tax:
Corporate tax refers to the tax levied on the profits of companies. By adjusting the corporate tax rate, the government can influence the profitability of businesses and their investment decisions. Lowering corporate taxes can incentivize companies to invest more, stimulate economic growth, and create job opportunities.

4. Public infrastructure spending:
Public infrastructure spending refers to government expenditure on infrastructure projects such as roads, bridges, railways, and airports. This form of spending is a fiscal policy tool because it directly impacts economic activity. Increased public infrastructure spending can stimulate aggregate demand, create jobs, and boost economic growth.

2. Repo rate:
The repo rate is not a fiscal policy tool but a monetary policy tool. It is the rate at which the central bank lends money to commercial banks. Changes in the repo rate influence interest rates in the economy, which in turn affects borrowing costs and investment decisions. The repo rate is set by the Reserve Bank of India (RBI) and is used to manage inflation and economic growth.

Therefore, the correct option is b) 1, 3, and 4 only.

The correct answer is option 'B', which means that statements 1 and 2 are correct, while statement 3 is incorrect. Let's analyze each statement individually to understand why.

1. Revenue deficit target of 0.8% by 2023:
The N.K. Singh Committee on Fiscal Responsibility and Budget Management (FRBM) has recommended a revenue deficit target of 0.8% by 2023. This means that the government aims to reduce its revenue deficit to 0.8% of the Gross Domestic Product (GDP) by 2023. Revenue deficit occurs when the government's total revenue falls short of its total expenditure, excluding borrowing. The committee has suggested this target to ensure fiscal discipline and sustainable growth. Therefore, statement 1 is correct.

2. Fiscal policy anchor should be public debt to GDP ratio:
The N.K. Singh Committee has recommended that the fiscal policy anchor should be the public debt to GDP ratio. The public debt to GDP ratio is a measure of the government's debt burden relative to the size of the economy. The committee believes that maintaining a sustainable level of public debt is crucial for fiscal stability and long-term growth. By making the public debt to GDP ratio the fiscal policy anchor, the committee aims to align fiscal policy decisions with debt sustainability considerations. Therefore, statement 2 is correct.

3. Target of fiscal deficit of 3.5% by 2023:
The third statement is incorrect. The N.K. Singh Committee has not recommended a target of fiscal deficit of 3.5% by 2023. Fiscal deficit is the difference between the government's total expenditure and its total revenue, including borrowing. While the committee has made various recommendations to improve fiscal discipline and consolidation, it has not specifically mentioned a target of 3.5% for fiscal deficit by 2023. Therefore, statement 3 is incorrect.

In conclusion, the correct statements regarding the N.K. Singh Committee recommendations are 1 and 2. The revenue deficit target of 0.8% by 2023 and the recommendation to make the public debt to GDP ratio the fiscal policy anchor are in line with the committee's recommendations. However, the target of fiscal deficit of 3.5% by 2023 is not mentioned in the committee's recommendations.

Received by the government for violation of laws
4. Dividends received by the government from public sector enterprises

1, 3, and 4 are sources that form part of the Revenue Receipts of the government.

Non-Debt Capital Receipts in the Government of India
Non-debt capital receipts refer to the funds received by the government that do not result in an increase in its debt burden. These receipts are crucial for the government as they help in reducing fiscal deficits and financing development projects. Let's analyze the given options to identify the non-debt capital receipts:

1. Recovery of loans
Recovery of loans refers to the repayment of loans given by the government to various entities. When these loans are repaid, they do not result in an increase in the government's debt as the principal amount is returned. Hence, recovery of loans is considered a non-debt capital receipt.

2. Securities against Public Provident Fund
Securities against Public Provident Fund refer to the investments made by the government in securities on behalf of individuals who have invested in the Public Provident Fund. When the government receives interest or dividends on these securities, it is considered a non-debt capital receipt.

3. Disinvestment receipts
Disinvestment receipts refer to the funds raised by the government through the sale of its equity holdings in public sector enterprises. These receipts do not lead to an increase in the government's debt and are considered non-debt capital receipts.
Therefore, options 1 and 3 (Recovery of loans and Disinvestment receipts) are correct as they represent non-debt capital receipts for the Government of India. Option 2, Securities against Public Provident Fund, may not always result in non-debt capital receipts depending on the specific transaction.

Relation between Current Account and Balance of Payment:

The current account is a part of the Balance of Payment (BoP) which comprises all the transactions between a country and the rest of the world in a specific period. It includes both visible (trade in goods) and invisible (services, remittances, etc.) transactions.

The correct code for the components of the current account in relation to BoP is option 'B', which includes the following:

1. Trade in goods: It includes export and import of goods between countries.

2. Invisible trade: It includes services like tourism, transportation, communication, and financial services.

3. Remittances: It includes money transferred by foreign workers to their home country.

4. Gifts: It includes the transfer of goods and services without any expectation of payment.

5. Trade in services: It includes export and import of services like software, education, healthcare, etc.

6. Transfer payments: It includes unilateral transfers like foreign aid, grants, and donations.

Therefore, the current account in relation to BoP includes all the above-mentioned components, making option 'B' the correct code.