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Indian Economy for IAS Prelims Exam 2017: Public Finance in India

Mar 27, 2017 14:25 IST

Economy IAS QuestionsIndian Economy is one of the important sections of IAS Prelims Exam syllabus. Particularly, this section contains a large number of questions in IAS Prelims Exam. So, an aspirant must prepare this section sincerely so, that they can score maximum in IAS Prelims Exam.

Indian Economy IAS Questions- oods and Services Tax (GST)

1. The Constitution of India has a provision (Art. 112) for such a document called Annual Financial Statement to be presented in the Parliament before the commencement of every new fiscal year. Consider the following statements regarding the composition of the Union Budget in India:
I. The Union Budget has three sets of data for every concerned sector or sub-sector of the economy.
II. Actual data of the preceding year (here preceding year means one year before the year in which the Budget is being presented.
III. Budgetary estimates for the following year (here following year means one year after the year in which the Budget is being presented or the year for which the Budget is being presented, i.e., 2016–17. This is shown with the symbol ‘BE’ in brackets with the concerned data.).

Which of the following statement(s) is/are correct?
a. Only I
b. I and II
c. II and III
d. All of the above

Answer: d

Explanation:

The Constitution of India has a provision (Art. 112) for such a document called Annual Financial Statement to be presented in the Parliament before the commencement of every new fiscal year— popular as the Union Budget. The Same provision is there for the States too.

Data in the Budget the Union Budget has three sets of data for every concerned sector or sub-sector of the economy:

(i) Actual data of the preceding year (here preceding year means one year before the year in which the Budget is being presented. Suppose the Budget presented is for the year 2016–17, the Budget will give the final/actual data for the year 2016–17 because the Budget is presented in February end of the financial year 2016–17. After the data either we write ‘A’, means actual data/final data or write nothing (India writes nothing).

(ii) Provisional data for the current year (since the Budget for 2016–17 is presented at the end of the fiscal 2016–17, it provides Provisional Estimates for this year (shown as ‘PE’ in brackets with the data).

(iii) Budgetary estimates for the following year (here following year means one year after the year in which the Budget is being presented or the year for which the Budget is being presented, i.e., 2016–17. This is shown with the symbol ‘BE’ in brackets with the concerned data.).

In IAS preparation, the IAS aspirants have to study the every aspect of the important issues and topics. GST is one of such important topics, on which there is a greater chance of asking questions in IAS Prelims Exam.
Here, we have provided Indian Economy IAS questions based on the topic- Goods and Services Tax for IAS Prelims Exam.

Indian Economy IAS Questions- Tax structure in India

2. Which of the following statements is true regarding the Union Budget in India:
a. Every form of money generation in the nature of income, earnings are revenue for a firm or a government which do not increase financial liabilities of the government—i.e., the tax incomes, nontax incomes along with foreign grants.
b. Every form of money generation which is not income or earnings for a firm or a government (i.e., money raised via borrowings) is considered a non-revenue source if they increase financial liabilities.
c. Every receiving or accrual of money to a government by revenue and non-revenue sources is a receipt. Their sum is called total receipts. It includes all incomes as well as non-income accruals of a government.
d. All of the above

Answer: d

Explanation:

Revenue

Every form of money generation in the nature of income, earnings are revenue for a firm or a government which do not increase financial liabilities of the government—i.e., the tax incomes, nontax incomes along with foreign grants.

Non-revenue

Every form of money generation which is not income or earnings for a firm or a government (i.e., money raised via borrowings) is considered a non-revenue source if they increase financial liabilities.

Receipts
Every receiving or accrual of money to a government by revenue and non-revenue sources is a receipt. Their sum is called total receipts. It includes all incomes as well as non-income accruals of a government.

Revenue Receipts

Revenue receipts of a government are of two kinds—Tax Revenue Receipts and Non-tax Revenue Receipts—consisting of the following income receipts in India:

Tax Revenue Receipts

This includes all money earned by the government via the different taxes the government collects, i.e., all direct and indirect tax collections.

Non-tax Revenue Receipts

This includes all money earned by the government from sources other taxes. In India they are—

(i) Profits and dividends which the government gets from its public sector undertakings (PSUs).

(ii) Interests received by the government out of all loans forwarded by it, be it inside the country (i.e., internal lending) or outside the country (i.e., external lending). It means this income might be in both domestic and foreign currencies.

(iii) Fiscal services also generate incomes for the government, i.e., currency printing, stamp printing, coinage and medals minting, etc.

(iv) General Services also earn money for the government as the power distribution, irrigation, banking, insurance, community services, etc.

(v) Fees, Penalties and Fines received by the government.

(vi) Grants which the governments receives—it is always external in the case of the central government and internal in the case of state governments.

Current Affairs Quizzes for IAS Prelims 2017- February 2017

3. Revenue Deficit as a new fiscal terminology used since the fiscal 1997–98 in India. Consider the following statements regarding the Revenue Deficit:
I. The government’s Revenue Budget is running in losses and the government is earning less revenue and spending more revenues—incurring a deficit.
II. Revenue expenditures are of immediate nature (this has to be done) and since they are consumptive/non-productive they are considered as a kind of expenditure which sums up to a heinous crime in the area of fiscal policy.

Which of the following statement(s) is/are correct?
a. Only I
b. Only II
c. Both I and II
d. Neither I nor II

Answer: c

Explanation:

If the balance of total revenue receipts and total revenue expenditures turns out to be negative it is known as revenue deficit, a new fiscal terminology used since the fiscal 1997–98 in India. This shows that the government’s Revenue Budget (see the next topic) is running in losses and the government is earning less revenue and spending more revenues—incurring a deficit. Revenue expenditures are of immediate nature (this has to be done) and since they are consumptive/non-productive they are considered as a kind of expenditure which sums up to a heinous crime in the area of fiscal policy. Governments fulfil the gap/deficit with the money which could have been spent/invested in productive areas.

A government might have its revenue expenditures less than its revenue receipts, i.e., having (revenue surplus) budget. Such fiscal policy is considered good where the government has been able to manage some money out of its revenue budget which could be spent on the creation of productive assets. Yes, another thing that should be kept in mind, as for how the government has managed this surplus and whether the policies which made this happen are judicious enough or not. In the Second Plan, India emerged as a revenue-surplus state but experts did not appreciate it as it had many bad impacts on the economy—higher tax rates culminated in tax evasion, corruption, the creation of black money, etc.

Revenue deficit may be shown in the quantitative form (as how much the gross/total deficit is in currency terms) or in percentage terms of the GDP for that particular year (shown as a percentage of GDP). Usually, it is shown in percentage of the GDP for domestic as well as international analyses.

Complete study material of ECONOMIC SURVEY 2016-17

4. Effective revenue deficit (ERD) is a new term introduced in the Union Budget 2011-12. Consider the following statements regarding the term Effective revenue deficit (ERD):
I. The ERD is the Revenue Deficit ‘including’ those revenue expenditures of the GoI which were done in the form of GoCA (grants for the creation of capital assets).
II. The ERD is the Revenue Deficit ‘excluding’ those revenue expenditures of the GoI which were done in the form of GoCA (grants for the creation of capital assets).
III. The GoCA includes the GoI grants forwarded to the States & UTs for the implementation of the centrally sponsored programmes such as Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Krishi Sinchai Yojana, Pradhan Mantri Krishi Bima Yojana, Pradhan Mantri Kaushal Vikas Yojana etc.

Which of the following statement(s) is/are correct?
a. Only I
b. I and II
c. II and III
d. All of the above

Answer: c

Explanation:

Effective revenue deficit (ERD) is a new term introduced in the Union Budget 2011-12. Conventionally, ‘revenue deficit’ is the difference between revenue receipts and revenue expenditures. Here, revenue expenditures include all the grants which the Union Government gives to the state governments and the UTs – some of which create assets (though these assets are not owned by the GoI but the concerned state governments and the UTs). According to the Finance Ministry (Union Budget 2011-12), such revenue expenditures contribute to the growth in the economy and therefore, should not be treated as unproductive in nature like other items in the revenue expenditures. And on this logic, a new methodology was introduced to capture the ‘effective revenue deficit’, which is the Revenue Deficit ‘excluding’ those revenue expenditures of the GoI which were done in the form of GoCA (grants for the creation of capital assets).

The GoCA includes the GoI grants forwarded to the States & UTs for the implementation of the centrally sponsored programmes such as Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Krishi Sinchai Yojana, Pradhan Mantri Krishi Bima Yojana, Pradhan Mantri Kaushal Vikas Yojana etc. – these expenses though they are shown by the GoI in its Revenue Expenditures they are involved with asset creation and cannot be considered completely ‘unproductive’ like other items put in the basket of the Revenue Expenditures – the reason why a new ‘terminology’ has been created.

Current Affairs Quizzes for IAS Prelims 2017- January 2017

5. Monetised Deficit is a new term adopted since 1997–98 in India. Consider the following statements regarding the Monetised Deficit:
I. The part of the fiscal deficit which was provided by the RBI to the government in a particular year is Monetised Deficit; this is a new term adopted since 1997–98 in India.
II. It is an innovation in the fiscal management which brings in more transparency in the government’s expenditure behaviour and also in its capabilities concerning its dependence on market borrowings by the RBI.

Which of the following statement(s) is/are correct?
a. Only I
b. Only II
c. Both I and II
d. Neither I nor II

Answer: c

Explanation:

The part of the fiscal deficit which was provided by the RBI to the government in a particular year is Monetised Deficit; this is a new term adopted since 1997–98 in India. This is shown in both the forms—in quantitative as well as a percentage of the GDP for that particular financial year. It is an innovation in the fiscal management which brings in more transparency in the government’s expenditure behaviour and also in its capabilities concerning its dependence on market borrowings by the RBI. Basically, every year both central and state governments in India had been depending heavily on market borrowings (internal) for its long-term capital requirements. Market borrowings of the government are done and managed by the RBI. Besides, the RBI is also the primary customer for government securities—yet another means of the government to raise long-term capital. This has been a major area of fiscal concern in India. After the process of fiscal consolidation was started by the government by the early 1990s, we see a visible improvement in this area. This term is itself arrived as the part of fiscal reforms in India (we will visit the issue of fiscal consolidation in India in the coming pages).

IAS Prelims 2017- GS Economy complete Study Material

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