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Fiscal Policy & Budget Terms

Banking / Economy Awareness · Institutions, Markets & Economy

Useful for: SSC CGL, IBPS Banking, OSSC RHT — Regular High School Teacher, OSSC Economics, OSSSC Govt TGT Arts, SSB Lecturer (Degree Colleges), SSB TGT Arts

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Overview

Public finance studies government revenue, expenditure, deficits and borrowing, and how fiscal policy affects the economy.

Key points

Revenue receipts (taxes, fees) do not create liabilities; capital receipts (borrowing, disinvestment) do or reduce assets.
Fiscal deficit = total expenditure − (revenue receipts + non-debt capital receipts).
Revenue deficit = revenue expenditure − revenue receipts.
Primary deficit = fiscal deficit − interest payments.
The FRBM Act (2003) sets fiscal-discipline targets.

Explanation

Direct taxes (income tax, corporation tax) fall on the payer; indirect taxes (GST) can be passed on.
The Finance Commission (Article 280) recommends sharing of central taxes with states.
Expansionary fiscal policy: more spending or lower taxes; contractionary: the reverse.
Capital expenditure builds long-term assets such as roads.

Step by step

Identify the concept, rule or constitutional provision involved.
Apply the definition or formula precisely.
Check signs, totals and the direction of the effect.

Examples

Fiscal deficit ₹7 lakh crore, interest payments ₹3 lakh crore → primary deficit ₹4 lakh crore.
Revenue expenditure ₹10 lakh crore, revenue receipts ₹8 lakh crore → revenue deficit ₹2 lakh crore.
Income tax is a direct tax; GST is an indirect tax.

Traps and advanced points

Trap: Counting borrowing as a revenue receipt.
Trap: Mixing fiscal and primary deficits.
Trap: Calling GST a direct tax.

Quick revision

FD − interest = primary deficit.
Article 112 budget; Article 280 Finance Commission.
FRBM 2003.

Practice MCQs

In banking/finance, what does “fiscal deficit” refer to most accurately?
1. Non-Performing Asset
2. excess of government total expenditure over non-borrowed receipts under the budget definition
3. External Benchmark Linked Rate
4. bank promise to pay beneficiary on specified default/conditions
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Answer: (b) excess of government total expenditure over non-borrowed receipts under the budget definition. It indicates borrowing requirement under the fiscal accounting framework.
Which term-description pair is correctly matched for the concept “fiscal deficit”?
1. fiscal deficit — pooled investment vehicle managed according to a stated scheme mandate
2. bond — excess of government total expenditure over non-borrowed receipts under the budget definition
3. working capital — excess of government total expenditure over non-borrowed receipts under the budget definition
4. fiscal deficit — excess of government total expenditure over non-borrowed receipts under the budget definition
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Answer: (d) fiscal deficit — excess of government total expenditure over non-borrowed receipts under the budget definition. It indicates borrowing requirement under the fiscal accounting framework.
Which banking/finance term is best described as: excess of government total expenditure over non-borrowed receipts under the budget definition?
1. demat account
2. fiscal deficit
3. capital adequacy
4. term deposit
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Answer: (b) fiscal deficit. It indicates borrowing requirement under the fiscal accounting framework.
Fiscal deficit = total expenditure minus —
1. interest payments
2. revenue expenditure
3. tax revenue only
4. revenue receipts + non-debt capital receipts
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Answer: (d) revenue receipts + non-debt capital receipts. Borrowing need of the government.
Primary deficit = fiscal deficit minus —
1. revenue deficit
2. interest payments
3. subsidies
4. capital expenditure
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Answer: (b) interest payments. Excludes interest.
Revenue deficit = revenue expenditure minus —
1. interest
2. revenue receipts
3. capital receipts
4. borrowings
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Answer: (b) revenue receipts. Shortfall on the revenue account.
The FRBM Act was passed in —
1. 1991
2. 2003
3. 2016
4. 2020
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Answer: (b) 2003. Fiscal Responsibility and Budget Management Act, 2003.
Income tax is a —
1. indirect tax
2. non-tax receipt
3. grant
4. direct tax
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Answer: (d) direct tax. Paid by the person taxed.
The Finance Commission is constituted under Article —
1. 356
2. 370
3. 112
4. 280
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Answer: (d) 280. Article 280.
Borrowing by the government is a —
1. tax
2. fee
3. revenue receipt
4. capital receipt
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Answer: (d) capital receipt. It creates liabilities.