Fiscal Policy & Revenue Archives

31. With reference to Union Budget, which of the following is/are covered

With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?

Defence expenditure
Interest payments
Salaries and pensions
Subsidies

Select the correct answer using the code given below.

Join Our Telegram Channel

1 only

2 and 3 only

1, 2 and 3 and 4

None

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2014

Download PDF Attempt Online

All four listed items fall under the traditional definition of Non-Plan Expenditure in the Union Budget.

Non-Plan Expenditure refers to the government’s essential or committed expenditures that are not directly linked to specific central plans or schemes. These include expenditures necessary for the functioning of the government and basic services.
Defence expenditure is a major component of non-plan expenditure.
Interest payments on the government’s borrowing constitute a significant portion of non-plan expenditure and are mandatory obligations.
Salaries and pensions for government employees are committed expenditures and fall under non-plan expenditure.
Subsidies (e.g., for food, fertilizers, petroleum) are also typically treated as non-plan expenditure aimed at providing support to specific sectors or populations.

The distinction between Plan and Non-Plan Expenditure was abolished starting from the Union Budget 2017-18. Expenditures are now classified based on Capital and Revenue accounts and outcomes. However, questions based on the older classification may still appear in exams referencing past budgets. Under the new system, these expenditures would still be classified, primarily under the Revenue account, but the “non-plan” label is no longer used for budget presentation.

32. The sales tax you pay while purchasing a toothpaste is a

The sales tax you pay while purchasing a toothpaste is a

Join Our Telegram Channel

tax imposed by the Central Government

tax imposed by the Central Government but collected by the State Government

tax imposed by the State Government but collected by the Central Government

tax imposed and collected by the State Government

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2014

Download PDF Attempt Online

The correct option is D. The sales tax you pay while purchasing a toothpaste is a tax imposed and collected by the State Government (in the pre-GST era or as a conceptual understanding).

Prior to the implementation of the Goods and Services Tax (GST) in India, Sales Tax (or Value Added Tax – VAT) on the sale of goods within a state was a state subject. This meant that the power to levy and collect sales tax on intra-state sales rested with the State Government, as per the State List (List II) of the Seventh Schedule of the Constitution of India.

With the advent of GST (implemented from July 1, 2017), most indirect taxes, including Sales Tax/VAT, Central Sales Tax, Service Tax, etc., were subsumed into a single tax. Under GST, tax on an intra-state sale is bifurcated into Central GST (CGST) and State GST (SGST), both levied simultaneously. However, the question refers to “sales tax,” implying the pre-GST regime or a general understanding of the tax on sales, which was a state domain.

33. Which one of the following is likely to be the most inflationary in it

Which one of the following is likely to be the most inflationary in its effect?

Repayment of public debt

Borrowing from the public to finance a budget deficit

Borrowing from banks to finance a budget deficit

Creating new money to finance a budget deficit

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2013

Download PDF Attempt Online

Creating new money to finance a budget deficit is likely to be the most inflationary among the given options.

Financing a budget deficit by creating new money (also known as seigniorage or printing money) directly increases the money supply in the economy without a corresponding increase in output. This is a direct monetary expansion that can lead to significant demand-pull inflation, especially if the deficit is large.

Borrowing from the public (B) involves transferring existing money from the public to the government. Borrowing from banks (C) involves credit creation by banks, which also increases money supply but often through a multiplier effect rather than directly creating base money like option D. Repayment of public debt (A), unless financed by printing money, generally doesn’t cause inflation and can even reduce demand if financed through taxation or borrowing from other sources. Direct money creation (D) is considered the most inflationary because it directly increases the monetary base.

Join Our Telegram Channel

34. In India, deficit financing is used for raising resources for

In India, deficit financing is used for raising resources for

Join Our Telegram Channel

economic development

redemption of public debt

adjusting the balance of payments

reducing the foreign debt

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC IAS – 2013

Download PDF Attempt Online

In India, deficit financing is primarily used for raising resources for economic development.

Deficit financing refers to the practice where the government spends more than it receives in revenue, making up the difference by borrowing (from domestic or foreign sources) or, historically, by printing money (borrowing from the central bank). In developing economies like India, where tax revenues are often insufficient to fund large-scale infrastructure and development projects, deficit financing has been a common tool to mobilise resources needed for planned expenditure aimed at economic growth and development.

While deficit financing can lead to inflation if not managed properly, it has been used as a means to stimulate investment and growth, particularly in the early stages of development planning. Options B, C, and D are not the primary reasons for employing deficit financing; in fact, deficit financing can sometimes complicate balance of payments (if funded externally) or increase public/foreign debt.

35. Arrange the following sources of revenue of the Central Government in

Arrange the following sources of revenue of the Central Government in ascending manner in terms of percentage contribution to the total revenues of the Central Government in 2023-24

Union Excise Duty, Custom, Corporation Tax, GST

Custom, Union Excise Duty, GST, Corporation Tax

Custom, Union Excise Duty, Corporation Tax, GST

Custom, GST, Union Excise Duty, Corporation Tax

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2024

Download PDF Attempt Online

Based on the Union Budget 2023-24 estimates (‘Rupee Comes From’ chart), the percentage contribution of the given sources to the Central Government’s gross tax revenues are approximately: GST (17%), Corporation Tax (15%), Income Tax (15%), Union Excise Duty (7%), and Customs (4%). Arranging the four specified sources in ascending order of their percentage contribution: Customs (4%) < Union Excise Duty (7%) < Corporation Tax (15%) < GST (17%). This order is represented by option C.

Tax revenues are the primary source of funding for the Central Government’s expenditure. Understanding the relative contribution of different taxes (like GST, Corporation Tax, Income Tax, Excise, Customs) provides insight into the tax structure and its evolution over time.

Since the introduction of GST, it has become one of the largest contributors to the Central Government’s revenue, comparable to or exceeding Income Tax and Corporation Tax. Other significant sources include Union Excise Duty on products like petroleum and Customs duties on imports.

Join Our Telegram Channel

36. Which of the following is a part of the capital receipt of the Governm

Which of the following is a part of the capital receipt of the Government of India ?

1. Disinvestment receipts
2. Interest receipts
3. Small savings
4. Net market borrowing

Select the answer using the code given below :

1 and 3 only

2 and 4 only

1, 2, 3 and 4

1, 3 and 4 only

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2024

Download PDF Attempt Online

Capital receipts are government receipts that either create a liability or lead to a reduction in the government’s assets. Statement 1, Disinvestment receipts, are proceeds from selling government shares in PSUs, leading to a reduction in financial assets, hence they are Capital Receipts. Statement 2, Interest receipts on loans given by the government, are a form of non-tax revenue that does not create a liability or reduce assets (unless it’s recovery of principal loan amount, which is a capital receipt), so they are Revenue Receipts. Statement 3, Small savings deposits (e.g., PPF, NSC), represent funds borrowed from the public, creating a liability for the government, thus they are Capital Receipts (specifically, part of debt capital receipts if raised via borrowings or liabilities under Public Account). Statement 4, Net market borrowing, involves the government raising funds by issuing bonds etc., creating a liability to repay, hence it is a Capital Receipt (debt-creating). Therefore, 1, 3, and 4 are parts of the capital receipt of the Government of India.

Government receipts are classified into Revenue Receipts (like taxes, interest, dividends) and Capital Receipts (like borrowings, disinvestment, loan recoveries, small savings). This classification is fundamental to understanding the government’s fiscal position.

Capital receipts are used to finance capital expenditure (like infrastructure creation) and repay existing debt. Debt-creating capital receipts increase the government’s debt burden, while non-debt capital receipts (like disinvestment, loan recovery) help finance expenditure without adding to debt.

Join Our Telegram Channel

37. Consider the following statements: 1. National Monetisation Pipelin

Consider the following statements:

1. National Monetisation Pipeline estimates that for the period 2022-2025, the top three sectors in terms of monetization potential are roads, railways, and oil and gas pipelines
2. Under the National Monetisation Pipeline, the instruments to be used for asset monetization include Public-Private Partnership concessions and Infrastructure Investment Trusts

Which of the statements given above is/are correct ?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2024

Download PDF Attempt Online

Statement 1 is incorrect. While Roads and Railways are indeed among the top sectors for monetization under the National Monetisation Pipeline (NMP) for FY22-FY25, the third sector with high potential was Power Transmission, followed by Power Generation, Natural Gas Pipelines, etc. Oil and Gas pipelines combined accounted for a smaller percentage than Power Transmission. Statement 2 is correct. The NMP framework explicitly includes Public-Private Partnership (PPP) concessions, Operation and Maintenance contracts, and the use of structured financing vehicles like Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) as instruments for asset monetization.

The National Monetisation Pipeline (NMP) is a plan to unlock the value of underutilized public sector assets across infrastructure sectors through temporary transfer of revenue rights to private players.

The NMP identifies brownfield assets across sectors like roads, railways, power, telecom, warehousing, ports, mining, aviation, and stadiums for monetization. The underlying principle is to leverage private sector efficiency and capital for operation and maintenance while retaining ownership with the government entity.

Join Our Telegram Channel

38. Population data of the year 2011 was first introduced in the tax devol

Population data of the year 2011 was first introduced in the tax devolution formula for sharing Union tax revenue with the States by

Thirteenth Finance Commission

Fifteenth Finance Commission

Fourteenth Finance Commission

Twelfth Finance Commission

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2024

Download PDF Attempt Online

The Fourteenth Finance Commission (period 2015-2020) was the first to incorporate the 2011 population census data into its formula for horizontal devolution of central tax revenues among states. Previous Finance Commissions (12th and 13th) primarily used the 1971 population data. The Fifteenth Finance Commission (period 2020-2025) also used the 2011 population data, but included an additional criterion for demographic performance to address concerns of states that had successfully controlled population growth.

Population data is a key determinant in the horizontal devolution formula of the Finance Commission, influencing the distribution of shared taxes among states. The shift to 2011 data by the 14th FC marked a significant change in this methodology.

The rationale for using the 1971 population data for a long period was to avoid penalizing states that had effectively controlled population growth. However, the 2011 data reflects the current demographic reality, leading to adjustments in the shares of states in the divisible pool.

Join Our Telegram Channel

39. Consider the following statements : 1. Burden of a tax on a commodit

Consider the following statements :

Join Our Telegram Channel

1. Burden of a tax on a commodity is independent of who (buyer or seller) it is explicitly imposed upon
2. Burden of a tax on a commodity depends on the slope of the demand and supply curves

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2024

Download PDF Attempt Online

Statement 1 is correct: The economic burden (incidence) of a tax, i.e., who ultimately pays the tax, is determined by the relative elasticities of demand and supply, not by whether the tax is legally imposed on the buyer or the seller. The statutory incidence is different from the economic incidence.
Statement 2 is correct: The slope of the demand and supply curves reflects their elasticity. Steeper curves indicate lower elasticity, while flatter curves indicate higher elasticity. When demand is less elastic than supply, the buyer bears more of the tax burden. When supply is less elastic than demand, the seller bears more of the burden. Thus, the burden depends on the slopes (and therefore elasticities) of the curves.
Since both statements are correct, option C is the correct answer.

Tax incidence analysis in economics shows that the distribution of the tax burden between consumers and producers depends entirely on the price elasticity of demand and supply, not on who is legally required to pay the tax.

If demand is perfectly inelastic (vertical demand curve), consumers bear the entire tax burden. If supply is perfectly inelastic (vertical supply curve), producers bear the entire tax burden. Conversely, if demand is perfectly elastic (horizontal demand curve), producers bear the entire burden. If supply is perfectly elastic (horizontal supply curve), consumers bear the entire burden.

40. Which one of the following is the largest component of revenue expendi

Which one of the following is the largest component of revenue expenditure in the Union Budget 2022 – 23 ?

Join Our Telegram Channel

Interest payments

Defense expenditure

Expenditure on healthcare

Subsidies

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2023

Download PDF Attempt Online

In the Union Budget 2022-23 (as in many previous budgets), ‘Interest payments’ is the single largest component of the revenue expenditure. The government has accumulated significant debt over time, and servicing this debt through interest payments constitutes a major outflow from the revenue account.

Interest payments on accumulated government debt typically form the largest share of the central government’s revenue expenditure.

While other components like defence revenue expenditure, subsidies, and expenditure on healthcare are significant, budget estimates and actual figures consistently show interest payments as the dominant item in the revenue expenditure category for the Union government. For instance, in the 2022-23 Budget Estimate, Interest Payments were budgeted at ₹9,40,651 crore out of a total revenue expenditure of ₹31,94,633 crore.