Fiscal Policy and Revenue (Part – III)

Total Questions: 50

21. Which one of the following motions has contextual relationship with the Union Budget:: [U.P.P.C.S. (Pre) 2002, U.P. Lower Sub. (Spl.) (Pre) 2003]

(a) Censure Motion
(b) Call Attention Motion
(c) Cut Motion
(d) Adjournment Motion

Correct Answer: (c) Cut Motion

Solution:A Cut Motion is a special power vested in members of the Lok Sabha (House of the People) to oppose a demand being discussed for specific allocation by the Government in the Finance Bill as part of the Demand for Grants. There are three types of Cut Motion (1) Disapproval of Policy Cut: A disapproval of policy cut demand seeks the amount of the demand be reduced to Rs. 1. (2) Economic Cut: It states that the amount of the demand be reduced by a specific amount. (3) Token Cut: A token cut motion is moved so that the amount of the demand is reduced by Rs. 100.

22. Which one of the following is not correctly matched? [U.P.P.CS. (Pre) 2017]

List - I	List - II
(a) Policy Cut Motion	Budget demand be reduced to Rs. one
(b) Economy Cut Motion	Budget demand be reduced by a specified amount
(c) Token Cut Motion	Budget demand be reduced to Rs. one hundred
(d) Vote on Account	Parliamentary sanction of all budgetary demands for grants in a financial year

Correct Answer: (d)

Solution:The Vote on Account is the special provision given to the government to obtain the vote of Parliament to withdraw money (as grant in advance) to meet short-term expenditure needs, from the Consolidated Fund of India, when the budget for the new financial year is not released or the elections are underway, and the caretaker government is in place. Pairs of other options are correctly matched.

23. Vote on Account is meant for: [B.P.S.C. (Pre) 2016]

(a) Vote on the report of CAG
(b) To meet unforeseen expenditure
(c) Appropriating funds pending passing of budget
(d) Budget
(e) None of the above/More than one of the above

Correct Answer: (c) Appropriating funds pending passing of budget

24. The Finance Ministry (Government of India) has introduced the concept of 'Outcome Budget' from 2005. Under this, the monitoring of the outcomes will be the responsibility of: [U.P.P.C.S. (Mains) 2009]

(a) Union Cabinet
(b) Planning Commission
(c) Finance Ministry and Planning Commission jointly
(d) Ministry of Programme Implementation

Correct Answer: (c) Finance Ministry and Planning Commission jointly

Solution:An outcome budget aims to look at the performance of various ministries handling development programmes. The Ministry of Finance had introduced the concept of 'Outcome Budget' from 2005. Under this, the outcomes of various development programmes of various ministries are monitered joinly by the Ministry of Finance and the Planning Commission (now NITI Aayog).

25. The concept of Performance Budget has been borrowed from: [U.P.P.C.S. (GIC) 2010]

(a) Germany
(b) France
(c) UK.
(d) U.S.A.

Correct Answer: (d) U.S.A.

Solution:The Performance Budget was first introduced in the USA, on the recommendation of Hoover Commission (1949). Performance budgeting is a method of budgeting that provides the purpose and objectives for which funds are needed, costs of programs and related activities proposed to accomplish those objectives and outputs to be produced or services to be rendered under each program.

26. Ad hoc Treasury bill system of meeting budget deficit in India was abolished on: [B.P.S.C. (Pre) 2015]

(a) 1st April, 1992
(b) 1st April, 1994
(c) 31 March, 1996
(d) 31st March, 1997

Correct Answer: (d) 31st March, 1997

Solution:The Ad hoc Treasury Bills emerged as a mode of financing Central Government's deficit in the mid-1950s. It was initiated as an administrative arrangement between the Central Government and the Reserve Bank of India. It was issued on the name of RBI for the short term lending requirements of the Government. It directly become monetize because with the issuance of it, the assets of RBI increases and hence liabilities also getting increased. The system of Ad hoc Treasury Bills to finance budget deficit was abolished on 31 March, 1997 (discontinued with effect from 1st April, 1997). The Union Budget for 1997-98 had announced the decision to introduce a new system called 'Ways and Means Advances (WMA)' in place of Ad học T-Bills.

27. The Indian Parliament exercises control on the audit of the Budget through its: [Jharkhand P.C.S. (Pre) 2013]

(a) Estimates Committee
(b) Public Accounts Committee
(c) Privileges Committee
(d) Audit Review Committee

Correct Answer: (b) Public Accounts Committee

Solution:The Indian Parliament exercises control on the audit of the Budget through its Public Accounts Committee. The Public Accounts Committee scrutinizes appropriation and finance accounts of Government and reports of the Comptroller and Auditor General. The Public Accounts Committee consists of not more than 22 members (15 from Lok Sabha and 7 from Rajya Sabha). In 1967, for the first time, a member from the opposition in Lok Sabha, was appointed as the Chairman of the Committee by the Speaker. This practice continues till date.

28. Consider the following statements: [L.A.S. (Pre) 2018]

1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.

2. The Central Government has domestic liabilities 21% of GDP as compared to that of 49% of GDP the State Governments.

3. As per the Constitution of India, it is mandatory for s State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter?

Which of the statements given above is/are correct?

(a) I only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1,2 and 3

Correct Answer: (c) 1 and 3 only

Solution:The FRBM Review Committee headed by N.K. Singh was appointed by the government to review the implementation of FRBM Act. In its report submitted in January 2017, the Committee suggested that the combined debt-to-GDP ratio of the Centre and States should be brought down to 60 percent by 2023 (comprising of 40 percent for the Centre and 20 percent for States) as against the existing 49.4 percent and 21 percent, respectively. Hence, statement 1 is correct but statement 2 is incorrect.

As per the Article 293(3) of the Constitution of India, a State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government. Hence, statement 3 is also correct. So option (c) is the correct answer.

29. Fiscal Responsibility and Budget Management Act was enacted in India in the year: [U.P.P.C.S. (Mains) 2008]

(a) 2007
(b) 2005
(c) 2002
(d) 2003

Correct Answer: (d) 2003

Solution:The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enacted in August, 2003. It became effective from 5 July, 2004 (date of commencement). The FRBM Act 2003 sets a target for the Government to establish financial discipline in the economy, improve the management of public funds, reduce the fiscal deficit and improved macroeconomic management by moving towards a balanced budget and strengthen financial prudence.

The FRBM Act, 2003 requires the Central Government to progressively reduce its outstanding debt, revenue deficit and fiscal deficit. The Central Government has to give three year rolling targets for these indicators when it presents the Union Budget each year. The Government was supposed to achieve fiscal deficit of 3% of GDP by 31 March, 2021. In Budget Estimates 2020-21, the fiscal deficit target was relaxed to 3.5% (as permitted by the FRBM Act) and it was estimated that fiscal deficit of 3.1% will be achieved by 2022- 23, but as per actual figures of 2020-21, the fiscal deficit was zoomed to 9.2% of GDP (due to COVID-19 pandemic impact). It is to be noted that the Medium-Term Fiscal Policy Statement has not provided rolling targets for budget deficits since 2021-22. In the 2024-25 Interim Budget speech, the Finance Minister reiterated the government's aim to reduce fiscal deficit to below 4.5% of GDP by 2025-26.

30. According to FRBM Bill, the target for achieving the 134, V tax-GDP ratio by 2008-09 is: [U.P.P.C.S. (Mains) 2005]

(a) 11 percent
(b) 12 percent
(c) 13 percent
(d) 14 percent

Correct Answer: (d) 14 percent

Solution:As per the Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, the target for achieving the tax-GDP ratio by 2008-09 was set at 12%. According to Interim Union Budget 2024-25, the ratio of Gross Tax Receipts to GDP in recent years are as follows: Actual figures 2022-23 (11.2%), revised estimates 2023-24 (11.6%) and budget estimates 2024- 25 (11.7%).

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