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Revenue deficit in India implies that
- a)the Indian Government needs to borrow in order to finance its expenses which will create capital assets
- b)the Indian Government needs to borrow in order to finance its expenses which do not create Capital assets
- c)the Indian Government needs to borrow from the Reserve Bank of India against government Securities
- d)the Indian Government needs to borrow from international financial institutions
- e)None of the above/More than one of the above
Correct answer is option 'B'. Can you explain this answer?
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Revenue deficit in India implies thata)the Indian Government needs to ...
The correct answer is -the Indian Government needs to borrow in order to finance its expenses which do not create Capital assets.
- Revenue deficit arises when the government's revenue expenditure exceeds the total revenue receipts.
- deficit includes those transactions that have a direct impact on a government’s current income and expenditure.
- The deficit represents that the government’s own earnings are not sufficient to meet the day-to-day operations of its departments.
- Hence, the government has to resort to the external borrowings in order to finance its expenses.
- To overcome the revenue deficit, the government can take these measures:
- Through the borrowings or sale of existing assets, the deficit could be met from the capital receipts.
- The government can increase its non-tax or tax receipts.
- The government could try to reduce unnecessary expenditures.
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Revenue deficit in India implies thata)the Indian Government needs to ...
Understanding Revenue Deficit in India
Revenue deficit refers to the situation where the government's revenue expenditure exceeds its revenue receipts. This means that the government is spending more than it is earning through taxes, fees, and other sources of income.
Key Implications of Revenue Deficit
- The Indian Government needs to borrow to finance its expenses, which do not create capital assets.
- This borrowing is primarily to cover day-to-day expenses such as salaries, pensions, and subsidies rather than investments that yield future returns.
Why Option B is Correct
- Nature of Borrowing: The revenue deficit indicates that the borrowed funds are used for operational expenses rather than capital projects. Capital expenditures are typically investments in infrastructure that generate economic returns over time.
- Financial Health: A consistent revenue deficit can signal underlying issues in fiscal management, leading to increased borrowing and potential long-term economic challenges.
- Impact on Economy: Continuous reliance on borrowing for revenue expenditure can lead to higher public debt, affecting the government's ability to invest in growth-oriented projects.
Other Options Explained
- Option A: Incorrect because borrowing for revenue deficit does not create capital assets.
- Option C: While the government can borrow from the Reserve Bank, this is not specific to revenue deficit financing.
- Option D: Borrowing from international financial institutions is not a direct implication of revenue deficit.
- Option E: Not applicable as only one option is correct.
In conclusion, the essence of revenue deficit lies in financing ongoing expenses rather than investments, making option B the correct choice.
Revenue deficit refers to the situation where the government's revenue expenditure exceeds its revenue receipts. This means that the government is spending more than it is earning through taxes, fees, and other sources of income.
Key Implications of Revenue Deficit
- The Indian Government needs to borrow to finance its expenses, which do not create capital assets.
- This borrowing is primarily to cover day-to-day expenses such as salaries, pensions, and subsidies rather than investments that yield future returns.
Why Option B is Correct
- Nature of Borrowing: The revenue deficit indicates that the borrowed funds are used for operational expenses rather than capital projects. Capital expenditures are typically investments in infrastructure that generate economic returns over time.
- Financial Health: A consistent revenue deficit can signal underlying issues in fiscal management, leading to increased borrowing and potential long-term economic challenges.
- Impact on Economy: Continuous reliance on borrowing for revenue expenditure can lead to higher public debt, affecting the government's ability to invest in growth-oriented projects.
Other Options Explained
- Option A: Incorrect because borrowing for revenue deficit does not create capital assets.
- Option C: While the government can borrow from the Reserve Bank, this is not specific to revenue deficit financing.
- Option D: Borrowing from international financial institutions is not a direct implication of revenue deficit.
- Option E: Not applicable as only one option is correct.
In conclusion, the essence of revenue deficit lies in financing ongoing expenses rather than investments, making option B the correct choice.
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Revenue deficit in India implies thata)the Indian Government needs to borrow in order to finance its expenses which will create capital assetsb)the Indian Government needs to borrow in order to finance its expenses which do not create Capital assetsc)the Indian Government needs to borrow from the Reserve Bank of India against government Securitiesd)the Indian Government needs to borrow from international financial institutionse)None of the above/More than one of the aboveCorrect answer is option 'B'. Can you explain this answer?
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