Fiscal System

Question 1

Fiscal Policy definition

Answer 1

That part of govt policy which is concerned with raising revenues through taxation and with deciding on the amounts and purposes of govt spending

Question 2

Fiscal Receipts definition

Answer 2

Taxes, user charges (power, water, transport charges, etc); disinvestment, borrowings from internal and external channels. All receipts are not earned, some are borrowed

Question 3

Article 112 of the constitution mandates

Answer 3

expenditure be shown in revenue and other categories

Question 4

Revenue receipt (Revenue account) includes

Answer 4

taxes and non-taxes sources.
Tax: GST, income tax, customs duty, corporation tax, etc
Non-Tax: user charges for railways, power, transport, etc; interests received on loans given, dividend, profits, etc

Question 5

Revenue Account expenditure

Answer 5

It does not directly create assets: interests payments, defence, subsidies, public administration.
Financial grants given to states as they do not create assets for central government
Synonyms of maintenance and consumption expenditure

Question 6

Capital account receipts

Answer 6

recoveries of loans and advances made by the central govt to states, UTs, PSUs
Fresh borrowings from inside and abroad
Disinvestments proceeds etc
—Some are debts and some are non debts

Question 7

Capital Account Expenditure

Answer 7

Loans made to states, UTs and PSUs
Expenditure for assets creation in infrastructure and social areas
Loans repaid etc

Question 8

Revenue Deficit (RD)

Answer 8

The difference between the revenue receipts (Tax and non-tax sources) and the revenue expenditure

Question 9

Effective Revenue Deficit (ERD)

Answer 9

The difference between the Revenue Deficit and the grants for creation of capital assets
Capital Assets: School, hospital, irrigation, etc

Question 10

Fiscal Deficit (FD)

Answer 10

The difference between what the govt EARNS and its total expenditures
Govt earnings: REVENUE ACCOUNT and all the non-debt creating CAPITAL RECEIPTS like recovered loans and disinvestment proceeds on the CAPITAL ACCOUNT
The difference amounts to all borrowings of the govt

Question 11

Gross Fiscal Deficit (Gross FD)

Answer 11

Total borrowings of the union govt

Question 12

Net Fiscal Deficit (Net FD)

Answer 12

Gross FD - loans to States, UT, local govt, PSU, etc

Question 13

Budget Deficit

Answer 13

The difference between the total budgeted receipts and the expenditure
The amount that is printed by RBI and supplied to GoI as credit

Question 14

Monetised Deficit

Answer 14

the borrowings made form the RBI through printing fresh currency

Question 15

Primary Deficit

Answer 15

The difference between the Fiscal deficit and the interest payments
Helps in assessing the progress of the government in its current fiscal efforts

Question 16

Deficit Financing

Answer 16

Printing currency by RBI for financing the expenditure of govt as revenues are not adequate

Question 17

Crowding Out effect

Answer 17

Rising public sector spending drives down private sector spending.

Question 18

Sovereign Debt Crisis

Answer 18

when a country finds it difficult to service external debt contracted in foreign currency

Question 19

Under the FRBM Act, documents to be laid are:

Answer 19

Medium Term Fiscal Policy Statement (MTFP)
Fiscal Policy Strategy Statement
Macroeconomic Framework Statement
Medium Term Expenditure Framework Statement (MTEF, a three-year rolling target)

Question 20

Medium Term Fiscal Policy Statement (MTFP) sets out 3-year rolling targets for 5 indicators

Answer 20

Revenue Deficit
Effective Revenue Deficit
Fiscal Deficit
Tax to GDP ratio
Total outstanding debt as a percentage of GDP

Question 21

Twin Deficit Challenge

Answer 21

Budget deficits (Fiscal deficit) and Current Account Deficit (CAD) are together known as twin deficit

Question 22

State Development Loans (SDL)

Answer 22

Debt securities auctioned by RBI to raise loans for state government
SDLs are eligible for SLR and LAF (repo) purposes, are brought by banks, insurance companies, mutual funds, other institutional investors

Question 23

Ways and Means Advances (WMA)

Answer 23

WMA: Temporary advances made by RBI to centre and state to bridge the short term mismatches b/w expenditure and receipts
Interest rate is the repo rate, if govt wants more then a penal rate (2%) will be charged on the additional amount

Question 24

Types of WMA

Answer 24

Normal: clean advances without any security, both CENTRE and STATE both are eligible
Special: secured advances against government dated securities, only STATE are eligible

Question 25

Zero Base Budgeting (ZBB)

Answer 25

Zero-based budgeting runs contrary to traditional budgeting where the previous year is taken as a base
It re-evaluates the entire budget

Question 26

National small saving Fund (NSSF)

Answer 26

Exclusion of States/UTs (with Legislature) excepting Arunachal Pradesh, Kerala, Madhya Pradesh and Delhi from NSSF Investments
The NSSF borrowings are serviced from CFI

Question 27

India’s External Debt: A Status Report

Answer 27

Department of Economic Affairs, Ministry of Finance

Question 28

Sovereign Debt Crisis (SDC)

Answer 28

The difficulties that a nation faces to service the loans it takes from foreign sources in foreign currency

Question 29

Masala Bonds

Answer 29

issued in global capital markets outside India by international financial institutions to raise money and lend to INDIAN companies
Masala bonds are denominated in rupees hence foreign investors will be taking the currency risk

Question 30

Fiscal Drag

Answer 30

Tax-related issues drag the prices down, it is called fiscal drag