Ramesh Singh Test : Public Finance In India


10 Questions MCQ Test Indian Economy for UPSC CSE | Ramesh Singh Test : Public Finance In India


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QUESTION: 1

Consider the following statements.

1. Revised Estimate is a current estimation of either the budgetary estimates (BE) or the provisional estimates (PE).

2. Quick Estimate is a kind of revised estimate which shows the most latest situation.

3. Advance Estimate is a kind of quick estimate but done ahead of the final stage when it should have been collected.

Which of these statements is/are correct?

Solution:

(i) Revised Estimate (RE) Revised Estimate is a current estimation of either the budgetary estimates (BE) or the provisional estimates (PE). It shows the contemporary situation.

(ii) Quick Estimate (QE) Quick Estimate is a kind of revised estimate which shows the most latest situation and is useful in the process of going for future projections for some sector or sub-sector. It is interim data.

(iii) Advance Estimate (AE) Advance Estimate is a kind of quick estimate but done ahead (in advance) of the final stage when it should have been collected. It is interim data.

QUESTION: 2

Consider the following statements.

1. All expenditures of productive nature consumptive kind are developmental.

2. Expenditures which do not involve any production are non-developmental.

Which of these statements is/are correct?

Solution:

Developmental and Non-developmental Expenditure: Total expenditure incurred by the government is classified into two segments-developmental and non-developmental.

  • All expenditures of productive nature are developmental such as on the heads of new factories, dams, bridges, roads, railways, etc.—all investments.

  • The expenditures which are of a consumptive kind and do not involve any production are non-developmental, i.e., paying salaries, pensions, interest payments, subsidies, defence expenses, etc. This classification is not used in the Indian public finance management now.

QUESTION: 3

Which of the following are the non-tax revenue receipts of the government?

1. Grants

2. Spectrum allocation

3. Interest received

Choose from the following options.

Solution:

Tax Revenue Receipts: This includes all money earned by the government via the different taxes the government collects, i.e., all direct and indirect tax collections.

Non-tax Revenue Receipts: This includes all money earned by the government from sources other than taxes. In India they are:

(i) Profits and dividends which the government gets from its public sector undertakings (PSU).

(ii) Interests received by the government out of all loans forwarded by it, be it inside the country (i.e., internal lending) or outside the country (i.e., external lending). It means this income might be in both domestic and foreign currencies.

(iii) Fiscal services also generate incomes for the government, i.e., currency printing, stamp printing, coinage and medals minting, etc.

(iv) General Services also earn money for the government as the power distribution, irrigation, banking, insurance, community services, etc.

(v) Fees, Penalties and Fines received by the government.

(vi) Grants which the governments receive are always external in the case of the Central Government and internal in the case of state governments.

QUESTION: 4

Which of the following are the revenue expenditure of the government?

1. Ayushman Bharat Yojana

2. Purchasing of S-400 defence system from Russia

3. Building Railway Infrastructure

Which of these statements is/are correct?

Solution:

Revenue Expenditure: All expenditures incurred by the government are either of revenue kind or current kind or compulsive kind. The basic identity of such expenditures is that they are of a consumptive kind and do not involve the creation of productive assets. A broad category of things that fall under such expenditures in India are:

(i) Interest paid by the government on the internal and external loans;

(ii) Salaries, Pension and Provident Fund paid by the government to government employees;

(iii) Subsidies forwarded to all sectors by the government;

(iv) Defence expenditures by the government;

(v) Postal Deficits of the government;

(vi) Law and order expenditures (i.e., police & paramilitary);

(vii) Expenditures on social services (includes all social sector expenditures as education, health care, social security, poverty etc)

(viii) Grants given by the government to Indian states and foreign countries.

QUESTION: 5

Consider the following statements.

1. Revenue deficit is the difference between revenue receipts and revenue expenditures.

2. Effective revenue deficit is the revenue deficit excluding that revenue expenditure of the Government of India which was done in the form of grants for creation of capital assets.

Which of these statements is/are incorrect?

Solution:
  • Effective revenue deficit (ERD) is a new introduction in the Union Budget 2011-12. Conventionally, revenue deficit (RD) is the difference between revenue receipts and revenue expenditures. According to the Finance Ministry (Union Budget 2011-12), such revenue expenditures contribute to the growth in the economy and therefore, should not be treated as unproductive like other items in the revenue expenditures. And on this logic, a new methodology was introduced to capture the effective revenue deficiť, which is the Revenue Deficit 'excluding those revenue expenditures of the Government of India were done in the form of GCA (grants for creation of capital assets).

QUESTION: 6

Consider the following statements about the capital budget.

1. The part of the Budget which deals with the receipts and expenditures of the capital by the government.

2. This shows how the capital is managed and the areas where capital is spent.

Which of these statements is/are incorrect?

Solution: Capital Budget: The part of the Budget which deals with the receipts and expenditures of the capital by the government. This shows how the capital is managed and the areas where capital is spent.

QUESTION: 7

Consider the following statements.

1. When the budgetary proposals of a government for a particular year proposes higher expenditures than the receipts, it is known as a deficit budget

2. If the budget proposes lesser expenditures than the receipts, then it is a surplus budget

Which of these statements is/are correct?

Solution: Both the statements are correct.

QUESTION: 8

Which of the following actions can be included in the fiscal policy of the government?

1. Reducing the income tax rate

2. Increasing the salaries of Government employees

3. Reducing the repo rate of the RBI

Choose from the following options.

Solution: Fiscal policy is also defined as changes in government expenditures and taxes that are designed to achieve macroeconomic policy goals (such as growth, employment, investment, etc.).

QUESTION: 9

Consider the following statements.

1. A balanced budget is a budget when the government borrow only to invest, note to finance current spending

2. Gender budget allocates funds and responsibilities based on gender

Which of these statements is/are correct?

Solution:
  • Golden rule: The proposition that a government should borrow only to invest (i.e., plan expenditure in India) and not finance current spending (i.e., revenue expenditure in India) is known as the golden rule of public finance.

  • Balanced Budget: A budget is said to be a balanced budget when total public sector spending equals total government income (revenue receipts) during the same period from taxes and charges for public services.

  • Gender Budgeting: A general budget by the government which allocates funds and responsibilities based on gender is gender budgeting. It is done in an economy where socioeconomic disparities are chronic and visible on a sex basis (as in India).

QUESTION: 10

The idea of zero-based budgeting first came from the:

Solution: The idea of zero-base budgeting (ZBB) first came to the privately owned organisation of the USA by the 1960s.