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.

Revenue Receipts of Government

Revenue receipts refer to the income received by the government through various sources. These receipts are non-debt receipts and do not create any liability for the government. They are used to meet the day-to-day expenses and operational costs of the government. Revenue receipts can be further classified into tax revenue and non-tax revenue.

Tax Revenue
Tax revenue consists of the income generated through various taxes levied by the government. It includes direct taxes such as income tax, corporate tax, and indirect taxes such as goods and services tax (GST), excise duty, customs duty, etc.

Non-Tax Revenue
Non-tax revenue includes all other sources of income for the government apart from taxes. It includes various receipts such as interest received on loans given, dividends from public sector undertakings, fees and fines, etc.

Analysis of Receipts

1. Recovery of loans given to the states and union territories: This is a non-tax revenue receipt. The government provides loans to the states and union territories for various purposes. When these loans are repaid, it is considered as a revenue receipt for the government. Therefore, option 1 is a revenue receipt.

2. Interest received from telecommunication: This is a non-tax revenue receipt. The government earns revenue through the licensing and spectrum fees charged to telecommunication companies. Additionally, the government may also earn interest on loans given to the telecommunication sector. Therefore, option 2 is a revenue receipt.

3. Debt and profit received from RBI: This is a non-tax revenue receipt. The government may earn revenue in the form of interest on loans given to the Reserve Bank of India (RBI) or profit shared by the RBI. Therefore, option 3 is a revenue receipt.

4. Income by tax: This is a tax revenue receipt. Taxes levied on individuals and businesses form a major part of the government's revenue. Therefore, option 4 is a revenue receipt.

Conclusion

Based on the analysis, options 2, 3, and 4 are revenue receipts of the government. Therefore, the correct option is b) 2, 3, 4.

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.

Capital Account in Balance of Payments

The capital account is one of the two main components of the balance of payments, the other being the current account. It records the flow of funds between a country and the rest of the world for the purpose of investment and borrowing. The capital account consists of two sub-accounts: the capital transfers and the acquisition and disposal of non-produced, non-financial assets.

1. External bonds issued by the Government of India
External bonds issued by the Government of India are a part of the capital account. When the government issues bonds to foreign investors, it attracts capital flows into the country. These bonds represent a debt obligation of the Indian government to the bondholders and are included in the capital account as they involve cross-border financial transactions.

2. Unilateral transfers like gifts and donations
Unilateral transfers, such as gifts and donations, are not a part of the capital account. These transfers are recorded in the current account of the balance of payments. The current account captures the flow of goods, services, income, and current transfers between a country and the rest of the world. Unilateral transfers are considered as current transfers and do not involve any exchange of assets or liabilities. They are recorded separately in the current account to measure the net transfer of resources.

3. Quota payment to IMF
Quota payment to the International Monetary Fund (IMF) is also a part of the capital account. Quota payments represent the capital contribution made by member countries to the IMF. These contributions determine a country's voting power, access to financial resources, and participation in decision-making within the IMF. Quota payments are considered as capital transfers and are included in the capital account as they involve the movement of financial resources across borders.

Conclusion
Based on the above analysis, option B is the correct answer. External bonds issued by the Government of India and quota payment to IMF are part of the capital account in the balance of payments. Unilateral transfers like gifts and donations, on the other hand, are recorded in the current account.

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.

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.

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.

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.

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.