Case Based Type Questions: Government Budget and the Economy

Q1:  Read the report given below and answer the question that follow:

NEW DELHI: Finance Minister Nirmala Sitharaman on Monday announced plans to sell a stake in LIC as part of her disinvestment plans for F/Y 22. In her Budget speech, the FM said her government will complete divestment of BPCL, CONCOR and SCI in F/Y 22. She said that her government will privatise two public sector banks (PSBs) and one general insurance company as well. "LIC IPO may see the light of day soon," said Jiger Saiya, Partner and Leader - Tax & Regulatory Services at BDO India.

Earlier, in an interview with ET, LIC Chairman M R Kumar had said the IPO is very much likely. "The point is that it is going to be big and we want to get the valuations right," he had said, adding that the listing of an insurance company requires determining the embedded value of the business.

LIC has started the process and would soon announce the software, which will assist it determine the right valuation. "We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready," Kumar said on January 11.

Last week, a Reuters report quoting sources suggested that the government was looking to sell 10-15 per cent in the country's biggest insurer to improve public finances.

To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC Act.

As part of its divestment drive, four CPSEs - HAL, SAIL, Bharat Dynamics and IRCTC -have come out with offers for sale (OFSs) this financial year. They garnered ₹12,907 crore to the exchequer. In addition, IPOs of IRFC and Mazagon Dock Shipbuilders together fetched ₹1,984 crore.

Also, this year, the government sold shares worth about ₹1,837 crore in private companies, in which it holds stakes through SUUTI.

Four state-owned companies, NTPC, RITES, NMDC and KIOCL, completed share buybacks, adding ₹2,769 crore to the exchequer.

The government is also looking to sell its entire 26.12 per cent stake in Tata Communications (TCL), erstwhile VSNL, through an OFS and strategic sale this financial year. The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Neelachal Ispat Nigam Limited and Ferro Scrap Nigam Limited (FSNL) is currently underway.

According to Reuters, why is the government looking to sell the country's insurer?
(a) To reduce revenue deficit
(b) To reduce fiscal deficit
(c) To improve public finances
(d) To get money other than taxes.
Ans: c
Sol: 
A Reuters report citing sources suggested the government was looking to sell 10-15 percent of the country's largest insurer to improve public finances.

Q2:  Read the report given below and answer the question that follow:

NEW DELHI: Finance Minister Nirmala Sitharaman on Monday announced plans to sell a stake in LIC as part of her disinvestment plans for F/Y 22. In her Budget speech, the FM said her government will complete divestment of BPCL, CONCOR and SCI in F/Y 22. She said that her government will privatise two public sector banks (PSBs) and one general insurance company as well. "LIC IPO may see the light of day soon," said Jiger Saiya, Partner and Leader - Tax & Regulatory Services at BDO India.

Earlier, in an interview with ET, LIC Chairman M R Kumar had said the IPO is very much likely. "The point is that it is going to be big and we want to get the valuations right," he had said, adding that the listing of an insurance company requires determining the embedded value of the business.

LIC has started the process and would soon announce the software, which will assist it determine the right valuation. "We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready," Kumar said on January 11.

Last week, a Reuters report quoting sources suggested that the government was looking to sell 10-15 per cent in the country's biggest insurer to improve public finances.

To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC Act.

As part of its divestment drive, four CPSEs - HAL, SAIL, Bharat Dynamics and IRCTC -have come out with offers for sale (OFSs) this financial year. They garnered ₹12,907 crore to the exchequer. In addition, IPOs of IRFC and Mazagon Dock Shipbuilders together fetched ₹1,984 crore.

Also, this year, the government sold shares worth about ₹1,837 crore in private companies, in which it holds stakes through SUUTI.

Four state-owned companies, NTPC, RITES, NMDC and KIOCL, completed share buybacks, adding ₹2,769 crore to the exchequer.

The government is also looking to sell its entire 26.12 per cent stake in Tata Communications (TCL), erstwhile VSNL, through an OFS and strategic sale this financial year. The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Neelachal Ispat Nigam Limited and Ferro Scrap Nigam Limited (FSNL) is currently underway.

The government will privatise _________ Public Sector Banks.
(a) One
(b) Two
(c) Three
(d) None of the above
Ans: b
Sol: 
Finance Minister Nirmala Sitharaman on Monday announced that her government will privatise two public sector banks (PSBs) and one general insurance company as well.

Q3:  Read the report given below and answer the question that follow:

NEW DELHI: Finance Minister Nirmala Sitharaman on Monday announced plans to sell a stake in LIC as part of her disinvestment plans for F/Y 22. In her Budget speech, the FM said her government will complete divestment of BPCL, CONCOR and SCI in F/Y 22. She said that her government will privatise two public sector banks (PSBs) and one general insurance company as well. "LIC IPO may see the light of day soon," said Jiger Saiya, Partner and Leader - Tax & Regulatory Services at BDO India.

Earlier, in an interview with ET, LIC Chairman M R Kumar had said the IPO is very much likely. "The point is that it is going to be big and we want to get the valuations right," he had said, adding that the listing of an insurance company requires determining the embedded value of the business.

LIC has started the process and would soon announce the software, which will assist it determine the right valuation. "We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready," Kumar said on January 11.

Last week, a Reuters report quoting sources suggested that the government was looking to sell 10-15 per cent in the country's biggest insurer to improve public finances.

To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC Act.

As part of its divestment drive, four CPSEs - HAL, SAIL, Bharat Dynamics and IRCTC -have come out with offers for sale (OFSs) this financial year. They garnered ₹12,907 crore to the exchequer. In addition, IPOs of IRFC and Mazagon Dock Shipbuilders together fetched ₹1,984 crore.

Also, this year, the government sold shares worth about ₹1,837 crore in private companies, in which it holds stakes through SUUTI.

Four state-owned companies, NTPC, RITES, NMDC and KIOCL, completed share buybacks, adding ₹2,769 crore to the exchequer.

The government is also looking to sell its entire 26.12 per cent stake in Tata Communications (TCL), erstwhile VSNL, through an OFS and strategic sale this financial year. The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Neelachal Ispat Nigam Limited and Ferro Scrap Nigam Limited (FSNL) is currently underway.

What other things can the government do to improve the deficit with respect to the current Covid situation?
(a) Borrowing from public
(b) Lowering government expenditure
(c) Raising government revenue
(d) None of the above
Ans: d
Sol: 
1. Ensure safe and fair access to vaccines across regions within countries through effective coordination mechanisms between national and subnational governments, for example by sharing dose delivery projections. This is particularly important as all levels of governments must anticipate the surge in supply and ensure that the logistics and infrastructure is ready as vaccine deliveries accelerate. Involve subnational governments in vaccination campaigns to ensure faster and better territorial coverage. Involving local actors, who are better informed about the local population and infrastructure, is essential to successfully reach people that need vaccines first (e.g. the elderly, people with pre-existing illnesses and healthcare workers) and relieving the pressure on the healthcare system.

2. Consider adopting a "place-based" or territorially sensitive approach to recovery policies. Introduce, activate or reorient existing multi-level coordination bodies in order to minimise the risk of a fragmented recovery response. Use such bodies to refine strategies, develop solutions, and agree on decisions with profound economic, social, and societal implications. Strengthen the quality of micro-level data within and between regions to improve understanding of the crisis and its impact.

3. Support cooperation across municipalities and regions to help minimise disjointed responses and competition for resources during a crisis. Facilitate inter-municipal cooperation to support recovery strategies by ensuring coherent safety/mitigation guidelines, pooling resources, and strengthening investment opportunities, for example through joint borrowing. Actively pursue and promote cross-border cooperation in order to promote a coherent recovery approach across a broad territory (e.g. border closure and reopening, containment measures, exit strategies, migrant workers).

4. Strengthen national and subnational-level support to vulnerable groups to limit further deterioration in circumstances and to strengthen inclusiveness in the recovery phase. Accomplishing this can include simplifying and facilitating access to support programmes, ensuring well-targeted services, introducing adequate and/or innovative fiscal support schemes, and identifying the needs for revising fiscal equalisation policies. Use digital opportunities (e.g. e-health, e-education) to help ensure continued service delivery, being sensitive to territorial, economic, and social disparities in access.

Q4:  Read the report given below and answer the question that follow:

NEW DELHI: Finance Minister Nirmala Sitharaman on Monday announced plans to sell a stake in LIC as part of her disinvestment plans for F/Y 22. In her Budget speech, the FM said her government will complete divestment of BPCL, CONCOR and SCI in F/Y 22. She said that her government will privatise two public sector banks (PSBs) and one general insurance company as well. "LIC IPO may see the light of day soon," said Jiger Saiya, Partner and Leader - Tax & Regulatory Services at BDO India.

Earlier, in an interview with ET, LIC Chairman M R Kumar had said the IPO is very much likely. "The point is that it is going to be big and we want to get the valuations right," he had said, adding that the listing of an insurance company requires determining the embedded value of the business.

LIC has started the process and would soon announce the software, which will assist it determine the right valuation. "We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready," Kumar said on January 11.

Last week, a Reuters report quoting sources suggested that the government was looking to sell 10-15 per cent in the country's biggest insurer to improve public finances.

To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC Act.

As part of its divestment drive, four CPSEs - HAL, SAIL, Bharat Dynamics and IRCTC -have come out with offers for sale (OFSs) this financial year. They garnered ₹12,907 crore to the exchequer. In addition, IPOs of IRFC and Mazagon Dock Shipbuilders together fetched ₹1,984 crore.

Also, this year, the government sold shares worth about ₹1,837 crore in private companies, in which it holds stakes through SUUTI.

Four state-owned companies, NTPC, RITES, NMDC and KIOCL, completed share buybacks, adding ₹2,769 crore to the exchequer.

The government is also looking to sell its entire 26.12 per cent stake in Tata Communications (TCL), erstwhile VSNL, through an OFS and strategic sale this financial year. The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Neelachal Ispat Nigam Limited and Ferro Scrap Nigam Limited (FSNL) is currently underway.

What is the main reason for this disinvestment?
(a) To reduce the fiscal deficit
(b) To revive the economy
(c) To create monopoly of industrialists
(d) To earn revenue
Ans: a
Sol: Dis-investment reduces the financial burden of the government.

Q5:  Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

Why didn't the government say anything about the capital gains tax?
(a) To stabilize the economic growth
(b) To help the economy for economic growth
(c) To rectify the losses that happened due to Covid-19
(d) All of the above
Ans: b
Sol: 
Export earnings, remittances, private investment, domestic savings, and external loans remain the primary sources of financing for economic growth. Development assistance,however, be it financial support, technical assistance, or policy dialogue, can play an important role in helping countries address knowledge and skill gaps, fill necessary infrastructure gaps, and institute policies and legislation that promote economic growth and stability and help manage their natural resources.

Q6:  Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

What type of tax is the Capital Gains Tax?
(a) Direct Tax
(b) Indirect Tax
(c) It is a cess
(d) It is a fine
Ans: a
Sol: A capital gains tax is a type of tax applied to the profits earned on the sale of an asset.

Q7:  Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

The capital gains in the highest bracket of earning comes around ________.
(a) 10%
(b) 15%
(c) 20%
(d) None of the above
Ans: b
Sol: The capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Q8:  Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

What is the reason for the government to increase taxes?
(a) To extract money from the people
(b) To use the money for themselves
(c) To achieve the objective of equality in income distribution
(d) To get their salary.
Ans: c
Sol: Government can collect tax from the rich and exempt the poor from income tax. Money so collected can be spent on providing free services to the poor. It will reduce disposable income of the rich and increase that of the poor.

Q9: Read the news report given below and answer the question that follow: 

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. "We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure," Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year's budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and "minimum government, maximum governance," the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Which objective of the Government Budget does the increase in capital expenditure serve?
(a) Encouragement of economic growth
(b) Stability in the economy
(c) Generation of employment
(d) All of the above
Ans: d
Sol: Encouragement of economic growth

• The 34.5% increase in capital expenditure aims to stimulate growth.
• This rise in spending is crucial for the country's recovery from the Covid pandemic.
• Additional funding of ₹2 lakh crore will be provided to states to enhance their own capital projects.
• A focus on infrastructure development will be encouraged through a new spending mechanism.
• The launch of a national asset monetisation pipeline aims to optimise government assets.
• The budget is built around six key pillars, ensuring a comprehensive approach to economic recovery.

This increase in capital expenditure supports overall economic stability and employment generation, making it beneficial for multiple objectives.

Q10:  Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. "We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure," Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year's budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and "minimum government, maximum governance," the finance minister had asserted. And capital expenditure is an important component that drives the growth.
Why has the Finance ministry hiked the Capital Expenditure?
(a) To recover from the Covid-19 pandemic
(b) To bring the economy back on track
(c) Both (A) and (B)
(d) Neither (A) nor (B)
Ans: c
Sol: 
​​Finance Minister Nirmala Sitharaman has proposed a 34.5 per cent sharp increase in capital expenditure to Rs 5.54 lakh crore in FY 2022 to propel growth. The massive increase comes at a time when the country is trying to recover from the Covid pandemic, as rising government spending is key to getting the economy back on track.

Q11:  Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. "We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure," Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year's budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and "minimum government, maximum governance," the finance minister had asserted. And capital expenditure is an important component that drives the growth.
What problem can the increase in this Capital Expenditure create?
(a) Fiscal Deficit
(b) Revenue Deficit
(c) Primary Deficit
(d) Budgetary Deficit
Ans: a
Sol: 
Fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure.

Q12:  Read the news report given below and answer the question that follow:
The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. "We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure," Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year's budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and "minimum government, maximum governance," the finance minister had asserted. And capital expenditure is an important component that drives the growth.
______________________ is an important component that drives the growth.
(a) Capital Expenditure
(b) Revenue Expenditure
(c) Capital Receipts
(d) Revenue Receipts
Ans: a
Sol: 
Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc.