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Fiscal Policy & Budget

Indian Economy

Useful for: UPSC Civil Services

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Overview

Fiscal policy uses government spending, taxation and borrowing; the Budget is the main instrument and deficits measure the gap.

Key points

Article 112: Annual Financial Statement; Article 114: Appropriation Bill; Article 110: Money Bill.
Fiscal deficit = total expenditure − (revenue receipts + non-debt capital receipts).
Revenue deficit = revenue expenditure − revenue receipts; effective revenue deficit = revenue deficit − grants for creation of capital assets.
Primary deficit = fiscal deficit − interest payments.
The FRBM Act (2003) sets fiscal-discipline targets.
Since 2017 the Budget is presented on 1 February and the Railway Budget is merged with the Union Budget.

Practice MCQs

From the perspective of definition and scope, which one of the following statements about Fiscal Policy & Budget is correct?
1. Fiscal Policy & Budget has no exceptions or limitations in exam analysis.
2. Fiscal policy works through taxation, expenditure, transfers and borrowing.
3. Every increase in government expenditure has the same growth and distribution effect regardless of its composition.
4. Fiscal Policy & Budget is unrelated to institutions, processes or real-world applications.
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Answer: (b) Fiscal policy works through taxation, expenditure, transfers and borrowing.. Fiscal policy works through taxation, expenditure, transfers and borrowing.
Consider the following statements on Fiscal Policy & Budget, focusing on definition and scope: 1. Fiscal policy works through taxation, expenditure, transfers and borrowing. 2. Quality of expenditure matters alongside the size of the deficit. Which of the statements given above is/are correct?
1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2
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Answer: (c) Both 1 and 2. Both statements are correct.

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Notes and questions are written by Kundali IQ for practice. They are not official papers; always check the latest official notification for the syllabus and pattern.