Indian Economy Quiz: Union Budget and Fiscal Policy

The correct answer is C, issuance of treasury bills. A receipt is capital if it either creates a liability for the government or reduces an asset it holds. A treasury bill is a short-term borrowing instrument, so issuing it creates a liability that must be repaid, and it is therefore classified as a capital receipt along with market loans, external loans, recovery of loans and disinvestment proceeds.

Option A, commercial revenue, is earned by government departments and undertakings from the sale of goods and services and neither creates a liability nor reduces an asset, so it is non-tax revenue. Option B, interest received on loans advanced by the government, is likewise recurring non-tax revenue. Option D, dividends and profits received from public sector undertakings and the Reserve Bank, is also non-tax revenue. All three are revenue receipts.

The correct answer is A, the Union Budget 2021-22. It was the first union budget in India not to be printed. The customary halwa ceremony that marks the start of printing was replaced, and the documents were made available to members of Parliament and to the public in electronic form through a dedicated Union Budget mobile application and the budget website.

Option B, the 2019-20 budget, is remembered instead for the briefcase being replaced by a red cloth ledger, but the documents were still printed. Option C, the 2020-21 budget, was presented before the change and is known for the longest budget speech delivered in Parliament. Option D, the 2018-19 budget, was the first full budget after the rollout of the goods and services tax, and again was a printed budget.

The correct answer is C, 6.8. The budget estimate for the fiscal deficit of the central government in 2021-22 was placed at 6.8 per cent of gross domestic product. The figure was unusually high because the budget followed the pandemic year, when revenue had collapsed and expenditure on relief had risen sharply, and the government set out a glide path to bring the deficit below 4.5 per cent of GDP by 2025-26.

Option A, 5.1 per cent, is far below the level announced for that year and reflects no budget estimate of the period. Option B, 7.6 per cent, and option D, 7.2 per cent, are both higher than the 2021-22 estimate; the revised estimate for the preceding pandemic year, 2020-21, was in fact placed even higher, near 9.5 per cent, which is the figure candidates often confuse with this one.

The correct answer is B, Rs. 30,000 crore. The Union Budget 2021-22 proposed raising the corpus of the Contingency Fund of India from five hundred crore rupees to thirty thousand crore rupees, and the change was carried through the Finance Bill of that year. The fund is constituted under Article 267, is held at the disposal of the President, and is used to meet urgent unforeseen expenditure pending authorisation by Parliament, after which it is recouped.

Option A, fifteen thousand crore, option C, twenty-five thousand crore, and option D, ten thousand crore, are all lower than the amount actually provided. The point worth remembering beyond the number is the reason for the increase: the corpus had remained unchanged for decades while the size of the budget had grown many times over, leaving too little room for genuine emergencies.

The correct answer is B, Article 112. The Constitution nowhere uses the word budget. Article 112 requires the President to cause to be laid before both Houses of Parliament, in respect of every financial year, a statement of the estimated receipts and expenditure of the Government of India, and this statement is called the Annual Financial Statement. What is popularly known as the Union Budget is that document together with the related papers.

Option A, Article 110, defines what a Money Bill is and lists the matters it may deal with. Option C, Article 114, provides for the Appropriation Bill, without the passage of which no money may be withdrawn from the Consolidated Fund of India. Option D, Article 123, has nothing to do with the budget at all: it gives the President the power to promulgate ordinances when Parliament is not in session.

The correct answer is B. Fiscal deficit is total expenditure minus total receipts other than borrowings, which means it measures exactly how much the government must borrow during the year to meet its planned spending. That is why it is described as the total borrowing requirement and why it, rather than the other deficits, is watched by rating agencies and by the bond market.

Option A describes the revenue deficit, which compares only revenue expenditure with revenue receipts and shows borrowing used for routine running costs. Option C is close to no standard definition; subtracting interest payments is done from the fiscal deficit to arrive at the primary deficit, not from total expenditure. Option D is not a recognised measure at all, since capital receipts consist largely of the very borrowings that the fiscal deficit is meant to exclude.

The correct answer is A, interest payments. Primary deficit equals fiscal deficit minus interest payments. Interest is the cost of borrowings made in earlier years, so removing it leaves the borrowing that the present year's policies alone make necessary. A country may therefore run a large fiscal deficit and a very small primary deficit if most of its borrowing goes to service old debt.

Option B, subsidies, is a component of revenue expenditure and is never subtracted to produce a defined deficit measure. Option C, defence expenditure, is likewise an ordinary head of spending and has no special place in any deficit formula. Option D, grants for the creation of capital assets, is subtracted from the revenue deficit, not from the fiscal deficit, and the result of that subtraction is the effective revenue deficit.

The correct answer is C, 2003. The Fiscal Responsibility and Budget Management Act was passed by Parliament in 2003 and its rules were brought into force in 2004. It requires the central government to place medium-term fiscal policy statements before Parliament along with the budget, to limit its deficits, and to disclose its liabilities, and it contains an escape clause permitting deviation in defined circumstances such as a national security emergency or a collapse of farm output.

Option A, 1991, is the year of the balance of payments crisis and the start of liberalisation, not of this law. Option B, 1999, saw no such enactment. Option D, 2016, is the year in which the FRBM Review Committee under N. K. Singh was constituted; it submitted its report in 2017 and recommended that the ratio of debt to gross domestic product become the principal fiscal anchor.

The correct answer is C, the policy cut. A policy cut motion asks that the amount of a demand be reduced to one rupee. The reduction is symbolic; the purpose is to record complete disapproval of the policy underlying the demand, and the member moving it may advocate an alternative policy. Because it is a direct challenge, a policy cut carried in the Lok Sabha would amount to a vote of no confidence in the government.

Option A, the token cut, reduces the demand by one hundred rupees and is used to ventilate a specific grievance within the sphere of the government's responsibility. Option B, the economy cut, reduces the demand by a definite stated amount and represents a demand that the expenditure be carried out more economically. Option D, the guillotine, is not a cut motion at all but the device by which the Speaker puts all outstanding demands to the vote on the last allotted day.

The correct answer is C, Article 116. It empowers the Lok Sabha to make a grant in advance, pending the completion of the procedure prescribed for voting the demands for grants and the passing of the Appropriation Act. This is the vote on account, and it keeps the machinery of government running in the interval, since money cannot lawfully be drawn from the Consolidated Fund without parliamentary authorisation.

Option A, Article 113, provides that estimates of expenditure charged on the Consolidated Fund shall not be submitted to the vote of Parliament and that a demand for a grant needs the President's recommendation. Option B, Article 115, deals with supplementary, additional or excess grants. Option D, Article 117, lays down the special provisions governing financial bills, including the requirement of the President's recommendation.

The correct answer is B, the Government of India through the Ministry of Finance. Fiscal policy means the use of taxation, public expenditure and public borrowing to influence output, employment and prices, and all three instruments belong to the government and are given effect through the Union Budget. During a slowdown it may spend more or tax less, and when demand is overheating it may do the opposite.

Option A, the Reserve Bank of India, conducts monetary policy through the repo rate, the cash reserve ratio, the statutory liquidity ratio and open market operations; it acts as banker to the government but does not frame the budget. Option C, the Securities and Exchange Board of India, regulates the securities market. Option D, the Finance Commission, is a constitutional body under Article 280 that recommends how central taxes should be shared with the states, which is a distribution question and not fiscal policy itself.