Consider the following statements:
- 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 of 21% of GDP as compared to that of 49% of GDP of the State Governments.
- 3. As per the Constitution of India, it is mandatory for a 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 ?
[amp_mcq option1=”1 only” option2=”2 and 3 only” option3=”1 and 3 only” option4=”1, 2 and 3″ correct=”option3″]
This question was previously asked in
UPSC IAS – 2018
Statement 2 is incorrect. As per government data around the time this question would be relevant (e.g., pre-pandemic years), the Central Government’s liabilities were significantly higher than 21% of GDP and also higher than the State Governments’ liabilities. State Governments’ total outstanding liabilities were typically around 25-30% of GDP, while the Centre’s liabilities were closer to 50-55% of GDP. The statement provides figures that are roughly the opposite of the actual situation.
Statement 3 is correct. Article 293(3) of the Constitution of India states that 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. This makes the Centre’s consent mandatory for states indebted to the Centre before raising further loans.
– Central government liabilities are typically higher than State government liabilities as a percentage of GDP.
– States need Central government’s consent to raise loans if they have outstanding loans from the Centre.