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Indian EconomyMedium

Primary deficit is obtained by subtracting which of the following from the fiscal deficit?

  1. A.Interest payments
  2. B.Revenue receipts
  3. C.Capital expenditure
  4. D.Grants-in-aid to States

Correct answer

A. Interest payments

Explanation

The correct answer is A, Interest payments. Primary deficit equals fiscal deficit minus interest payments. Interest is the price of borrowing done in earlier years, so removing it leaves the gap created by the current year's own decisions on spending and taxation, which is why economists read the primary deficit as a measure of present fiscal discipline. Option B is wrong because revenue receipts are already counted on the receipts side in arriving at the fiscal deficit itself. Option C is wrong because capital expenditure is part of total expenditure and is not deducted again; a fiscal deficit financing capital works is treated differently in quality, but the formula does not change. Option D is wrong because grants given to States for creating capital assets are deducted from the revenue deficit to give the effective revenue deficit, not from the fiscal deficit.

Read the full article: Public Finance and Finance Commission: Articles and Deficits

Practice Questions

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Q1.Indian EconomyEasy

Which article of the Constitution of India provides for the constitution of a Finance Commission?

  1. A.Article 112
  2. B.Article 266
  3. C.Article 280
  4. D.Article 324
Show answer
Correct answer: C. Article 280

Article 280 requires the President to constitute a Finance Commission at the expiration of every fifth year, or earlier if the President considers it necessary, consisting of a Chairman and four other members, and lists the matters on which it is to make recommendations.

Q2.Indian EconomyAsked in: SSC CGL · 20 Jul 2023, Shift 4Hard

Which of the following statements is/are correct regarding the Finance Commission of India? A. The Finance Commission consists of a Chairman and four other members. B. The recommendations made by the Finance Commission are binding on the government and the government needs to grant funds according to the advice of the Commission. C. Article 280 of the Indian Constitution talks about the recommendations of the Finance Commission.

  1. A.A and B only
  2. B.A, B and C
  3. C.A and C only
  4. D.B and C only
Show answer
Correct answer: C. A and C only

Statement A is correct: Article 280 provides that the Commission shall consist of a Chairman and four other members appointed by the President.

Q4.Indian EconomyMedium

Fiscal deficit of the Government of India is best defined as:

  1. A.Revenue expenditure minus revenue receipts
  2. B.Total expenditure minus total receipts other than borrowings
  3. C.Total expenditure minus interest payments
  4. D.Capital expenditure minus capital receipts
Show answer
Correct answer: B. Total expenditure minus total receipts other than borrowings

Fiscal deficit measures the whole amount the government must borrow in a year, because it compares everything it spends with everything it earns from taxes, non-tax revenue, recovery of loans and disinvestment, leaving borrowing out of the receipts side.

Q5.Indian EconomyAsked in: Uttar Pradesh · 22 Dec, 2018, Shift 1Medium

According to Article 243-I of the Constitution of India, a Finance Commission is constituted to review the financial position of the Panchayats:

  1. A.at the expiration of every sixth year
  2. B.at the expiration of every fifth year
  3. C.at the expiration of every second year
  4. D.at the expiration of every third year
Show answer
Correct answer: B. at the expiration of every fifth year

Article 243-I, inserted by the seventy-third Constitutional Amendment of 1992, requires the Governor of a State to constitute a Finance Commission at the expiration of every fifth year to review the financial position of the Panchayats and to recommend how taxes, duties, tolls and fees should be divided between the…