Union Budget & Fiscal Deficit — Set 16

Correct Answer: B. B. Boosting capital expenditure on infrastructure with multi-year planning

The National Infrastructure Pipeline (NIP), launched in 2019, is a multi-year initiative targeting ₹111 lakh crore in infrastructure investment over 2019-25. It supports the government's objective of scaling up capital expenditure for long-term growth. NIP covers roads, railways, airports, ports, power, digital infrastructure, and urban development. Budget capital allocation to NIP sectors has grown significantly since its launch.

Correct Answer: C. C. Atal Bihari Vajpayee Government (2003)

The FRBM Act was passed by the Atal Bihari Vajpayee-led NDA Government in 2003 during Jaswant Singh's tenure as Finance Minister. It came into force in July 2004. The Act was a landmark fiscal reform aimed at eliminating revenue deficit, reducing fiscal deficit, and building up adequate reserves. It marked India's commitment to rules-based fiscal discipline as part of post-1991 economic reforms.

Correct Answer: C. C. Provident Fund collections, Post Office deposits, and other trust funds

The Public Account of India (Article 266(2)) includes funds for which the government acts as a banker or trustee — not as the owner. Examples: General Provident Fund, Post Office savings deposits, Small Savings, State Provident Funds managed by Centre, National Small Savings Fund (NSSF), Reserve Funds, and Deposits. Parliamentary appropriation is not required for these funds as the government holds them on behalf of others.

Correct Answer: B. B. To provide strategic policy inputs; it does not control budget allocations like Planning Commission did

Unlike the Planning Commission (which controlled plan expenditure allocations and fund releases to states), NITI Aayog is a policy think-tank without direct budgetary control. NITI Aayog provides strategic and technical inputs for policy planning but does not allocate or control funds. Budget decisions are made by the Ministry of Finance. Finance Commission, not NITI Aayog, determines fiscal transfers to states.

Correct Answer: B. B. It is an imprest account for urgent unforeseen expenditure not requiring prior Parliamentary approval

The Contingency Fund of India is an imprest (advance) fund held at the President's disposal for meeting urgent, unforeseen expenditure that cannot await Parliamentary approval. It must be replenished by Parliament later. In contrast, the Consolidated Fund is the main government fund requiring full Parliamentary authorisation for all withdrawals. The Contingency Fund provides fiscal flexibility for genuine emergencies without bypassing Parliamentary control.

Correct Answer: B. B. Central-State fiscal relations and tax devolution

Article 280 Finance Commission recommendations primarily govern Central-State fiscal relations — specifically the distribution of Union tax proceeds between Centre and States (vertical and horizontal), grants-in-aid to states, and any other matter for sound finance. The Finance Commission is the constitutional mechanism for fiscal federalism in India, ensuring that states receive an equitable share of national tax revenues for their development needs.

Correct Answer: B. B. Higher share of capital expenditure and productive spending relative to revenue/consumptive spending

Quality of expenditure refers to the composition and productivity of government spending. High-quality expenditure has a higher share of capital expenditure (infrastructure, human capital) relative to revenue expenditure (subsidies, salaries). Higher capital expenditure has stronger growth multiplier effects. The shift from revenue spending to capital spending improves the long-term productive capacity of the economy, creating lasting assets.

Correct Answer: B. B. Government needs more funds than originally appropriated during the financial year

A Supplementary Appropriation Bill (arising from Supplementary Demands for Grants) is presented to Parliament when the government requires expenditure over and above what was originally voted in the Annual Budget. Common reasons include: higher-than-expected subsidy burden (oil, food, fertiliser), emergency relief expenditure, defense requirements, or new policy initiatives. Parliament must approve additional spending before it can be drawn from the Consolidated Fund.

Correct Answer: B. B. Consultations with economists, industry bodies, trade unions, agriculture representatives, and state governments

The Finance Ministry conducts extensive pre-budget consultations with diverse stakeholders including economists, industry associations (CII, FICCI, ASSOCHAM), trade unions, agricultural organisations, state finance ministers, and experts. These consultations help identify priorities, assess concerns, and incorporate diverse perspectives into budget formulation. The Chief Economic Adviser also collects inputs for the Economic Survey in this process.

Correct Answer: B. B. Government should use fiscal tools (spending/taxes) to maintain full employment regardless of deficit/surplus

Functional Finance, proposed by economist Abba Lerner, argues that the government should use fiscal policy (adjusting spending and taxes) purely to achieve macroeconomic goals like full employment and price stability, without worrying about whether the budget is in deficit or surplus. The budget should be a functional tool for economic management. This Keynesian idea underpins fiscal stimulus policies during recessions, prioritising outcomes over deficit orthodoxy.