Ans: C

Exp:

Statement-I is correct: In India, it is required by the constitution (Article 112) to give an account of the government’s anticipated receipts and outlays for each fiscal year, which runs from 1 April to 31 March.

Statement-II is incorrect: The term budget is nowhere used in the Constitution. The ‘budget’ is referred to as the Annual Financial Statement in the constitution under 112. The Budget is a statement of the Government estimated receipts and expenditure in a financial year starting from April 1 and ending on 31 March. Those receipts and expenditure that relate to the current financial year only are included in the revenue account (also called revenue budget) and those that concern the assets and liabilities of the government into the capital account (also called capital budget).

References: pwonlyias.com, NCERT Class 12th Economy: Chapter 5

Ans: D

Exp:

Statement 1 is incorrect: Those receipts that do not result in a claim against the government are referred to as non-redeemable receipts. Revenue receipts are referred to as non-redeemable receipts because they don’t create any liability nor lead to the creation of any additional assets. 

Statement 2 is incorrect: Revenue receipts are divided into tax revenues and non-tax revenues. The Non-Tax revenue is recurrent money that the government receives from sources other than taxes. They are the tax revenues that do not come from taxing the general public. Revenue Receipts are payments received that do not result in obligations or a claim against the government. Thus Non- tax revenue receipts is not a liability to the government.

References: NCERT Class 12th Economy: Chapter 5

Ans: A

Exp:

Pair 1 is incorrectly matched: Effective Revenue Deficit signifies the amount of capital receipts that are being used for actual consumption expenditure of the Government.

• ERD=Revenue Deficit -Grants for the creation of capital assets

Pair 2 is incorrectly matched: Primary Deficit indicates the borrowing requirements of the government, excluding interest. It is the amount by which the total expenditure of a government exceeds the total income. Note that the primary deficit does not include the interest payments made.

• Primary Deficit = Fiscal Deficit (Total expenditure – Total income of the government) – Interest payments (of previous borrowings)

Pair 3 is correctly matched: A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.

• Total Expenditures by the Government − Total Income of the government

References: pwonlyias.com

Ans: D

Exp:

The Golden Rule is a guideline for the operation of fiscal policy, especially in countries who use high borrowing to run the budget. It states that over the economic cycle, the Government should borrow only to invest and not to fund current spending (current expenditure means day to day running expenses). In layman’s terms, this means that the government should borrow to finance investment that benefits future generations. It is relevant in particular for governments that rely heavily on debt or borrowing to fund their budgets. The implicit message of the golden rule is that it is not advisable to use debt to support expenditures like maintaining government operations (revenue expenditure), paying pensions and salaries, and other costs that disproportionately favour the current generation

References: pwonlyias.com

Ans: B

Exp: To evaluate the effectiveness of the Fiscal Responsibility and Budget Management act (FRBM Act),  the Indian government constituted a committee in May 2016, chaired by N.K. Singh, a prominent economist and former bureaucrat. The N.K. Singh Committee’s assessment found that the existing fiscal deficit targets set by the act were deemed to be overly stringent, considering the need for flexibility in responding to changing economic dynamics and priorities. As a result, the committee proposed revised targets to strike a balance between fiscal discipline and economic growth.

• The committee recommended that the government target a fiscal deficit of 3% of the Gross Domestic Product (GDP) in the years leading up to March 31, 2020.
• Following this, the fiscal deficit was suggested to be reduced to 2.8% in the financial year 2020-21 and further down to 2.5% by the financial year 2023. 
• These revised targets aimed to ensure a gradual reduction in fiscal deficits while accommodating the need for public spending and promoting sustainable economic growth.

The recommendations of the N.K. Singh Committee provided valuable insights for adjusting the fiscal deficit targets under the FRBM Act, with the goal of aligning fiscal policy with economic realities and development imperatives.