Union Budget & Fiscal Deficit — Set 11

Correct Answer: B. B. Revenue Receipts and Revenue Expenditure

The Revenue Budget consists of Revenue Receipts (tax revenue + non-tax revenue) and Revenue Expenditure (salaries, interest, subsidies, pensions). Revenue expenditure does not create assets. When revenue expenditure exceeds revenue receipts, the result is a revenue deficit. A zero revenue deficit means the government funds its entire current operations from its own current income.

Correct Answer: C. C. Capital Receipts and Capital Expenditure

The Capital Budget comprises Capital Receipts (borrowings, disinvestment proceeds, recovery of loans) and Capital Expenditure (creation of assets, loans to states and PSUs, repayment of past borrowings). Capital receipts and expenditures affect the asset-liability position of the government. Higher capital expenditure builds national infrastructure and enhances long-term growth potential.

Correct Answer: B. B. Capital Expenditure minus Capital Receipts (non-debt)

Fiscal Deficit = Revenue Deficit + (Capital Expenditure − Non-debt Capital Receipts). This formulation shows that fiscal deficit arises from both the revenue side (revenue deficit) and the capital side (net capital expenditure funded by borrowings). Reducing either the revenue deficit or net capital borrowing reduces the fiscal deficit. This relationship clarifies the structure of the government's financing requirement.

Correct Answer: D. D. ₹2 lakh crore

Primary Deficit = Fiscal Deficit − Interest Payments = ₹10 lakh crore − ₹8 lakh crore = ₹2 lakh crore. In this scenario, a very large share of borrowings (₹8 out of ₹10 lakh crore) is going toward servicing existing debt interest. The primary deficit of only ₹2 lakh crore indicates the government's current spending is nearly balanced, with accumulated debt burden dominating the fiscal deficit.

Correct Answer: C. C. Grants for creation of Capital Assets given to States

Effective Revenue Deficit (ERD) = Revenue Deficit − Grants for creation of Capital Assets. Some revenue expenditure takes the form of grants to states/UTs for creating capital assets (building roads, schools, hospitals). Since these create productive assets despite being classified as revenue expenditure, the ERD is a better indicator of the 'pure' revenue deficit that represents consumption spending without asset creation.

Correct Answer: B. B. 3% of GDP

The FRBM Act mandated reducing the fiscal deficit to 3% of GDP as the medium-term target. This target has been the benchmark since the FRBM framework was established. The revised FRBM framework (post NK Singh Committee 2017) further aimed to reduce it to 2.5% by 2022-23. However, actual fiscal deficits have often exceeded 3% due to economic slowdowns, stimulus measures, and COVID-19.

Correct Answer: C. C. Fiscal deficit to debt as the fiscal anchor

A key recommendation of the NK Singh Committee (2017) was to shift India's primary fiscal anchor from 'fiscal deficit as a percentage of GDP' to 'debt-to-GDP ratio' as the overarching anchor. The committee recommended a combined Centre-State debt ceiling of 60% of GDP by 2022-23, with fiscal deficit targets derived from the debt anchor. This represents a more comprehensive approach to fiscal sustainability.

Correct Answer: C. C. 3 years

The Medium Term Fiscal Policy (MTFP) Statement is a rolling three-year forward-looking document presented with the Union Budget. It provides the government's targets for fiscal deficit and revenue deficit for the budget year and the following two years. This rolling framework ensures fiscal planning extends beyond the annual budget horizon, providing continuity and medium-term fiscal discipline.

Correct Answer: C. C. Article 112

Article 112 of the Indian Constitution requires the President to cause a statement of the estimated receipts and expenditure of the Government of India for each financial year to be laid before both Houses of Parliament. This statement — the Annual Financial Statement — is the constitutional name for the Union Budget. The Budget sets out revenue and expenditure for April 1 to March 31.

Correct Answer: B. B. No money can be withdrawn from Consolidated Fund without Parliamentary authorisation

Article 114 of the Constitution requires that no money shall be withdrawn from the Consolidated Fund of India except under an Appropriation made by law (Appropriation Act). The Appropriation Bill, when passed, becomes the Appropriation Act authorising withdrawals from the Consolidated Fund for the entire financial year. It is the formal legal basis for all government spending during the year.