Fiscal Policy & Revenue

21. Consider the following statements: 1. Tax revenue as a percent of GD

Consider the following statements:

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  • 1. Tax revenue as a percent of GDP of India has steadily increased in the last decade.
  • 2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade.

Which of the statements given above is/are correct ?

1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC IAS – 2017
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The correct option is D, as neither statement 1 nor statement 2 is correct.
Both statements claim a “steadily increased” trend over the last decade (referring to the decade prior to the question’s likely year, e.g., 2003-2013).
1. Tax revenue as a percent of GDP: India’s tax-to-GDP ratio has historically fluctuated based on economic cycles, policy changes (like tax reforms), and collection efficiency. While there have been efforts to increase it, it did not show a *steady* increase over a full decade; there were ups and downs, including a dip after the 2008 global financial crisis.
2. Fiscal deficit as a percent of GDP: Governments aim to manage and often reduce the fiscal deficit as a percentage of GDP for macroeconomic stability. While stimulus measures or economic slowdowns can lead to temporary increases, a *steady* increase over a decade is not a typical pattern or policy goal and generally has not happened in the Indian context; it fluctuates based on budgetary policies and economic conditions.
Economic indicators like tax-to-GDP ratio and fiscal deficit are influenced by numerous factors and rarely exhibit a strictly ‘steady’ trend over a long period like a decade. Analyzing specific government budgets and economic reports from the relevant period would confirm the non-steady nature of these trends.

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22. What is/are the most likely advantages of implementing ‘Goods and Serv

What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

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  • 1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
  • 2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
  • 3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

1 only
2 and 3 only
1 and 3 only
1, 2 and 3
This question was previously asked in
UPSC IAS – 2017
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Statement 1 correctly identifies a primary advantage of GST, which is the creation of a unified national market by subsuming multiple taxes.
The Goods and Services Tax (GST) aims to simplify the indirect tax structure in India, replacing various central and state taxes with a single comprehensive tax, thereby reducing tax cascading and promoting ease of doing business across states.
Statements 2 and 3 make exaggerated and less certain claims. While GST is expected to positively impact the economy in the long run by increasing tax buoyancy and improving supply chains, drastic reduction in the Current Account Deficit or enormously increasing the growth to overtake China in the near future are not guaranteed outcomes solely due to GST implementation; these factors depend on a multitude of economic variables.

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23. The Global Infrastructure Facility is a/an

The Global Infrastructure Facility is a/an

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ASEAN initiative to upgrade infrastructure in Asia and financed by credit from the Asian Development Bank.
World Bank collaboration that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships (PPPs) to enable mobilization of private sector and institutional investor capital.
Collaboration among the major banks of the world working with the OECD and focused on expanding the set of infrastructure projects that have the potential to mobilize private investment.
UNCTAD funded initiative that seeks to finance and facilitate infrastructure development in the world.
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UPSC IAS – 2017
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The correct answer is B) World Bank collaboration that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships (PPPs) to enable mobilization of private sector and institutional investor capital.
The Global Infrastructure Facility (GIF) is a collaborative platform led by the World Bank Group. Its primary role is to support developing countries in preparing and structuring viable, bankable infrastructure projects, particularly Public-Private Partnerships (PPPs), to attract and mobilize private sector investment.
The GIF was launched in 2014 by the World Bank Group in partnership with G20 nations and other multilateral development banks, private sector investors, and governments. It acts as a global platform that pools expertise and resources from its partners to address the constraints in the early stages of complex infrastructure PPP project development in developing countries. It focuses on project preparation support rather than directly providing financing for construction.

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24. With reference to ‘National Investment and Infrastructure Fund’, which

With reference to ‘National Investment and Infrastructure Fund’, which of the following statements is/are correct ?

  • 1. It is an organ of NITI Aayog.
  • 2. It has a corpus of ₹ 4,00,000 crore at present.

Select the correct answer using the code given below :

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC IAS – 2017
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The correct answer is D) Neither 1 nor 2.
The National Investment and Infrastructure Fund (NIIF) is not an organ of NITI Aayog. It is a fund set up by the Government of India to attract investment into the country’s infrastructure sector. The initial planned corpus for NIIF was significantly less than ₹4,00,000 crore.
Statement 1 is incorrect. NIIF was established in 2015 by the Government of India as a Category II Alternative Investment Fund (AIF) under the Securities and Exchange Board of India (SEBI) Regulations, 2012. While both NIIF and NITI Aayog are government initiatives related to economic development, NIIF is a separate fund management entity, not a subsidiary or organ of NITI Aayog. Statement 2 is incorrect. The initial target corpus announced for NIIF was ₹40,000 crore (approximately USD 6 billion at the time), with the government contributing 49%. The actual funds raised and managed across its various funds (Master Fund, Fund of Funds, Strategic Opportunities Fund) are substantial but have evolved and grown over time, and ₹4,00,000 crore is not its current stated corpus or target corpus size.

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25. The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the n

The term ‘Base Erosion and Profit Shifting’ is sometimes seen in the news in the context of

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mining operation by multinational companies in resource-rich but backward areas
curbing of the tax evasion by multinational companies
exploitation of genetic resources of a country by multinational companies
lack of consideration of environmental costs in the planning and implementation of developmental projects
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The correct option is B, as the term ‘Base Erosion and Profit Shifting’ is seen in the news in the context of curbing tax practices by multinational companies.
– ‘Base Erosion and Profit Shifting’ (BEPS) refers to tax planning strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in tax rules across different countries.
– These strategies allow MNEs to ‘erode’ their tax base in higher-tax jurisdictions and ‘shift’ profits to lower-tax jurisdictions, often where there is little or no real economic activity, resulting in minimal or no corporate tax being paid.
– The OECD (Organisation for Economic Co-operation and Development) initiated the BEPS project to tackle these issues and ensure that profits are taxed where economic activities generating the profits are performed and where value is created. Thus, it is about curbing tax avoidance (which is legal but exploits loopholes) by multinational companies.
– Options A, C, and D relate to different issues (mining, genetic resources, environmental costs) unrelated to BEPS.
The OECD/G20 Inclusive Framework on BEPS brings together over 140 countries and jurisdictions to collaborate on the implementation of BEPS measures and address remaining BEPS issues.

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26. Which of the following is/are included in the capital budget of the Go

Which of the following is/are included in the capital budget of the Government of India?

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  • 1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.
  • 2. Loans received from foreign governments
  • 3. Loans and advances granted to the States and Union Territories

Select the correct answer using the code given below.

1 only
2 and 3 only
1 and 3 only
1, 2 and 3
This question was previously asked in
UPSC IAS – 2016
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The correct answer is D) 1, 2 and 3. All three statements are included in the capital budget of the Government of India.
– The capital budget comprises capital receipts and capital expenditure.
– Capital receipts include loans received from foreign governments and borrowings from the public.
– Capital expenditure includes expenditure on the acquisition of assets like land, buildings, machinery, and equipment, as well as loans and advances granted by the central government to state governments, union territories, and public sector undertakings.
The budget of the Government of India is divided into Revenue Budget and Capital Budget. The Revenue Budget deals with revenue receipts and revenue expenditure, which do not affect the asset/liability status of the government. The Capital Budget deals with capital receipts and capital expenditure, which create assets or liabilities for the government.

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27. Which one of the following is a purpose of ‘UDAY’, a scheme of the

Which one of the following is a purpose of ‘UDAY’, a scheme of the Government?

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Providing technical and financial assistance to start-up entre- preneurs in the field of renewable sources of energy
Providing electricity to every household in the country by 2018
Replacing the coal-based power plants with natural gas, nuclear, solar, wind and tidal power plants over a period of time
Providing for financial turnaround and revival of power distribution companies
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UPSC IAS – 2016
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UDAY stands for Ujwal DISCOM Assurance Yojana. It is a scheme launched by the Government of India aimed at the financial and operational turnaround of Power Distribution Companies (DISCOMs).
State-owned power distribution companies in India have historically suffered from significant financial losses and debt, primarily due to AT&C (Aggregate Technical and Commercial) losses and tariffs not covering the cost of supply. The UDAY scheme provides a framework for states to take over a portion of their DISCOMs’ debt, and for operational improvements to reduce losses and improve efficiency.
Option A relates more to schemes like Startup India or specific renewable energy promotion schemes. Option B relates to the Saubhagya scheme (Pradhan Mantri Sahaj Bijli Har Ghar Yojana). Option C relates to energy policy and transition towards cleaner sources but is not the specific purpose of UDAY. UDAY’s core focus is on resolving the financial distress of DISCOMs to ensure the sustainability of the power sector chain.

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28. There has been a persistent deficit budget year after year. Which acti

There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?

  • Reducing revenue expenditure
  • Introducing new welfare schemes
  • Rationalizing subsidies
  • Reducing import duty

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1 and 2
1 and 3
2 only
1, 2 and 4
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UPSC IAS – 2016
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A persistent deficit budget means that the government’s total expenditure exceeds its total receipts (excluding borrowings) year after year, leading to an increase in public debt. To reduce this deficit, the government needs to either increase its revenue or decrease its expenditure.
Let’s analyze each action:
1. **Reducing revenue expenditure:** Revenue expenditure includes government spending on salaries, pensions, interest payments, subsidies, etc., which do not create assets. Reducing these items directly lowers total government expenditure, thus helping to reduce the fiscal deficit. This action is correct.
2. **Introducing new welfare schemes:** Welfare schemes involve government spending, typically revenue expenditure (e.g., subsidies, direct benefit transfers). Introducing new schemes increases government expenditure, which would likely increase the fiscal deficit, not reduce it. This action is incorrect.
3. **Rationalizing subsidies:** Subsidies are a significant part of government expenditure. Rationalizing subsidies (e.g., by targeting them better, reducing their amount, or phasing them out) reduces government expenditure, thus helping to reduce the fiscal deficit. This action is correct.
4. **Reducing import duty:** Import duties (customs duties) are a source of tax revenue for the government. Reducing import duties would decrease government revenue (unless the reduction stimulates imports so much that the volume effect outweighs the rate reduction, which is not guaranteed), thus increasing the fiscal deficit. This action is incorrect.
Therefore, actions 1 (Reducing revenue expenditure) and 3 (Rationalizing subsidies) are effective ways for the government to reduce a budget deficit. Other measures to reduce the deficit could include increasing tax rates, improving tax collection efficiency, divesting from public sector undertakings, etc.

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29. There has been a persistent deficit budget year after year. Which of t

There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit?

  • 1. Reducing revenue expenditure
  • 2. Introducing new welfare schemes
  • 3. Rationalizing subsidies
  • 4. Expanding industries

Select the correct answer using the code given below.

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1 and 3 only
2 and 3 only
1 only
1, 2, 3 and 4
This question was previously asked in
UPSC IAS – 2015
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Actions 1 (Reducing revenue expenditure) and 3 (Rationalizing subsidies) can be taken by the government to reduce a persistent deficit budget.
A budget deficit occurs when a government’s total expenditures exceed its total revenues. To reduce the deficit, the government must either increase revenue or decrease expenditure.
Reducing revenue expenditure (e.g., on salaries, pensions, administrative costs) directly lowers government spending. Rationalizing subsidies (e.g., reducing their amount or targeting them better) also reduces expenditure. Introducing new welfare schemes typically increases government expenditure, thus increasing the deficit. Expanding industries is a long-term strategy for economic growth which *may* eventually lead to higher tax revenues, but it is not a direct or immediate action specifically aimed at *reducing* a persistent deficit through expenditure cuts or quick revenue increases; it might even require initial government investment.

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30. Which of the following brings out the ‘Consumer Price Index Number for

Which of the following brings out the ‘Consumer Price Index Number for Industrial Workers’?

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The Reserve Bank of India
The Department of Economic Affairs
The Labour Bureau
The Department of Personnel and Training
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UPSC IAS – 2015
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The correct option is C. The Labour Bureau brings out the ‘Consumer Price Index Number for Industrial Workers’ (CPI-IW).
– In India, Consumer Price Indices (CPI) measure changes over time in the retail prices of goods and services which working-class families consume.
– The Labour Bureau, an attached office of the Ministry of Labour & Employment, compiles CPI for Industrial Workers (CPI-IW), Agricultural Labourers (CPI-AL), and Rural Labourers (CPI-RL).
– The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI), compiles the All India CPI (Rural, Urban, and Combined).
CPI-IW is particularly important as it is used for determining dearness allowance for central government employees and workers in the organised industrial sector.

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