UPSC Indian Economy – Chapter 16: Fiscal Policy, Deficits, Debt and the FRBM Act (28 MCQs)
UPSC Indian Economy – Chapter 16: Fiscal Policy, Deficits, Debt and the FRBM Act (28 MCQs) – 27 questions, subject: Indian Economy. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.
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The fiscal deficit of the Government is equal to its:
Correct Answer: C [total borrowing requirement for the year]
Explanation:
The fiscal deficit is the gap between total expenditure and non-debt receipts, which the Government must fill by borrowing in that year.
Primary deficit is:
Correct Answer: D [fiscal deficit minus interest payments]
Explanation:
Removing interest on past debt from the fiscal deficit shows the borrowing needed for the year's current needs.
Effective revenue deficit is the revenue deficit minus:
Correct Answer: C [grants-in-aid for creation of capital assets]
Explanation:
Effective revenue deficit deducts grants-in-aid for creating capital assets, since such revenue grants to States build assets.
The fiscal deficit of the Union Government in the Budget Estimates of 2026-27 is:
Correct Answer: D [4.3 per cent of GDP]
Explanation:
Budget 2026-27 put the Union fiscal deficit at Rs 16.96 lakh crore, about 4.3 per cent of GDP.
Consider the following statements:
1. A high revenue deficit means the Government is borrowing to meet consumption expenditure.
2. Revenue deficit is always larger than the fiscal deficit.
Which of the statements given above is/are correct?
Correct Answer: A [1 only]
Explanation:
A revenue deficit means borrowed money funds consumption spending; the fiscal deficit, which also covers capital spending, is usually larger.
The N. K. Singh Committee recommended a general government debt-to-GDP ratio of:
Correct Answer: C [60 per cent]
Explanation:
The committee recommended general government debt of 60 per cent of GDP by 2023 – 40 for the Centre, 20 for the States.
Under the escape clause recommended by the FRBM Review Committee, the fiscal deficit can deviate from the target by up to:
Correct Answer: D [0.5 per cent of GDP]
Explanation:
The escape clause allows the fiscal deficit to exceed the target by up to 0.5 per cent of GDP in specified situations.
Which Article requires a State to obtain the Centre's consent for borrowing while it owes money to the Centre?
Correct Answer: B [Article 293(3)]
Explanation:
Article 293(3) requires a State to obtain the Centre's consent for a loan while any Central loan to it remains outstanding.
Automatic monetisation of the deficit through ad hoc Treasury Bills ended from:
Correct Answer: B [1 April 1997]
Explanation:
replaced by Ways and Means Advances.
In a recession, which one of the following is an expansionary fiscal measure?
Correct Answer: C [Raising spending on infrastructure projects]
Explanation:
More spending on infrastructure raises demand and income through the multiplier – the counter-cyclical response a recession needs.
Assertion (A): Capital expenditure generally has a larger fiscal multiplier than revenue expenditure.
Reason (R): Capital expenditure is financed only through taxes.
Correct Answer: D [A is true, but R is false]
Explanation:
capex is often financed by borrowing.
If the interest rate on government debt is lower than the nominal GDP growth rate and the primary budget is balanced, then:
Correct Answer: A [the debt-to-GDP ratio falls]
Explanation:
With no primary deficit, debt grows only at the interest rate; if that is below nominal GDP growth, the ratio falls.
Under the debt-based fiscal framework announced in Budget 2025-26 and followed in Budget 2026-27, the Centre's debt-to-GDP target is:
Correct Answer: B [50 ± 1 per cent by 2030-31]
Explanation:
Budget 2025-26 set the Centre's debt at 50 ± 1 per cent of GDP by 31 March 2031, operative from 2026-27.
Arrange the following in chronological order:
1. FRBM Act
2. End of ad hoc Treasury Bills
3. N. K. Singh Committee report
4. Debt anchor of 50 ± 1 per cent announced
Select the correct answer:
Correct Answer: C [2-1-3-4]
Explanation:
1997, 2003, 2017, 2025.
Which one of the following made the food subsidy fully "on budget" by ending loans to the FCI from the NSSF?
Correct Answer: C [Budget 2021-22]
Explanation:
Budget 2021-22 stopped NSSF loans to the FCI and provided the food subsidy fully through the Budget.
Interest payments of the Union Government in 2026-27 (BE) are about what share of its revenue receipts?
Correct Answer: A [40 per cent]
Explanation:
Interest of about Rs 14.04 lakh crore against revenue receipts of about Rs 35.33 lakh crore is roughly 40 per cent.
"Crowding out" refers to:
Correct Answer: B [a fall in private investment caused by heavy government borrowing]
Explanation:
Heavy government borrowing raises demand for loanable funds and interest rates, squeezing out private investment.
The FRBM Act was enacted in:
Correct Answer: D [2003]
Explanation:
Parliament enacted the Fiscal Responsibility and Budget Management Act in 2003 to bind the Centre to deficit targets.
Under the FRBM Act, the Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement is laid before Parliament with the:
Correct Answer: D [Union Budget]
Explanation:
along with the Macro-economic Framework Statement.
Suppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings of ₹10,000 crores and interest payments of ₹6,000 crores. Which of the following statements are correct?
1. Revenue deficit is ₹20,000 crores.
2. Fiscal deficit is ₹10,000 crores.
3. Primary deficit is ₹4,000 crores.
Select the correct answer using the code given below:
Correct Answer: D [1, 2 and 3]
Explanation:
RD 20,000; FD = borrowing 10,000; PD 10,000 − 6,000.
A country's fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country's interest liabilities are ₹1,500 crores. What is the gross primary deficit?
Correct Answer: A [₹48,500 crores]
Explanation:
50,000 − 1,500.
With reference to the Indian economy, consider the following statements :
1. A share of the household financial savings goes towards government borrowings.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct ?
Correct Answer: C [Both 1 and 2]
Explanation:
Household savings reach the Government through deposits, insurance, provident funds and small savings, and dated securities form most internal debt.
Which among the following steps is most likely to be taken at the time of an economic recession?
Correct Answer: B [Increase in expenditure on public projects]
Explanation:
Higher spending on public projects raises aggregate demand and employment, the standard expansionary response to a recession.
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?
Correct Answer: C [1 and 3 only]
Explanation:
The FRBM Review Committee proposed 60/40/20 by 2023, and Article 293(3) requires Central consent while Central loans are outstanding.
Consider the following statements:
1. Tax revenue as a per cent of GDP of India has steadily increased in the last decade.
2. The fiscal deficit as a per cent of GDP of India has steadily increased in the last decade.
Which of the statements given above is/are correct?
Correct Answer: D [Neither 1 nor 2]
Explanation:
neither moved steadily.
A decrease in the tax to GDP ratio of a country indicates which of the following?
1. Slowing economic growth rates
2. Less equitable distribution of national income
Select the correct answer using the code given below.
Correct Answer: A [1 only]
Explanation:
Tax revenue tracks economic activity, so a falling tax-GDP ratio usually signals slowing growth; it says nothing about distribution.
In India, deficit financing is used for raising resources for:
Correct Answer: A [economic development]
Explanation:
India has used deficit financing mainly to fund planned development spending when tax and borrowing resources fell short.
➤ Full notes, maps, tables, a reason for every option and Mains PYQs – U15 · Indian Economy (UPSC book, ₹249): www.shanmugamiasacademy.in/study-materials/upsc-indian-economy
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