Economy · X-Factor Notes
Fiscal Policy and Revenue Revision Summary revision notes for UPPCS Prelims.
High-Yield Revision| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Fiscal Policy Definition | A policy related to public expenditure, taxation, and public debt. These three elements are the important instruments of Fiscal Policy. | |
| Policy Formulation | Fiscal policy is formulated by the Central Government/Ministry of Finance. | UPPCS (Mains) 2008 |
| Instrument of Fiscal Policy | Budget is an instrument of Fiscal Policy. | |
| Originator of Fiscal Policy Tool |
| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Budget Major Expenditure Type | Revenue expenditure is generally the largest amount of expenditure in the Union Budget. | UPPCS (Pre) 2006* |
| Largest Item of Revenue Expenditure | Interest Payments constitute the most important and largest item of revenue expenditure/total expenditure of the Union Government. | UPPCS (Mains) 2017, UPPCS (Pre) 2005, UPPCS (Mains) 2006 |
| Non-Plan Expenditure (Pre-2017) |
| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Revenue Deficit | Defined as the difference between Revenue Expenditure and Revenue Receipts. | UPPCS (Pre) 2002 |
| Fiscal Deficit Comparison | Fiscal Deficit will always remain Higher than Revenue Deficit. | UPPCS (Mains) 2008* |
| Fiscal Deficit Definition | The difference between total expenditure and total receipts, |
| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Redistribution of Income | Best achieved through progressive taxation combined with progressive expenditure. | UPPCS (Pre) 1995 |
| Sources of Public Revenue | Income Tax, Public Borrowing, and VAT are sources; Subsidy is a public expenditure, not a source. | U.P. Lower Sub. (Pre) 2009 |
| Current/Revenue Account Income |
| Concept | What to remember | Asked in UPPCS |
|---|---|---|
| Constitutional Basis/Function | Constitutional body constituted by the President under Article 280. Primary function is the distribution of revenue/finances between the Centre and the States. | UPPCS (Pre) 2007, UPPCS RO-ARO 2023 Prelims Re-Exam |
| First FC Chairman | Shri K.C. Neogy. | UPPCS (Pre) 2021 |
| 11th FC Recommendation |
| Keynesian Policy Prescription | Expansionary fiscal policy (through higher government spending) overcomes deficiency of aggregate demand. |
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| Response to Economic Recession (Fiscal Stimulus) | Key actions include Increase in expenditure on public projects and cutting tax rates, cutting interest rates. Abolishing subsidies is not part of fiscal stimulus. |
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| Long-Term Fiscal Policy | It was announced by Finance Minister V.P. Singh. | UPPCS (Mains) 2008 |
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| Revenue Estimates Preparation | Prepared by the Ministry of Finance in consultation with CBDT and CBIC. |
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| Union Budget Preparation/Presentation | Responsibility lies with the Department of Economic Affairs (Ministry of Finance). |
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| Macro Economic Framework Statement | This document, placed alongside the Budget, is mandated by the Fiscal Responsibility and Budget Management Act, 2003. |
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| Economic Survey of India | Published annually by the Ministry of Finance (Department of Economic Affairs) under the guidance of the Chief Economic Adviser. | U.P. U.D.A./L.D.A. (Spl.) (Pre) 2010, UPPCS (Mains) 2015 |
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| Zero-Base Budget (ZBB) | Introduced in India; involves a critical review of every scheme before budgetary provision is made. | UPPCS (Mains) 2002 |
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| Chakravyuha Challenge of the Indian economy | Movement of Indian economy from socialism with limited entry to marketism without exit |
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| Budget Reforms (2017-18) | Major reforms included the removal of Plan and Non-Plan classification of expenditure and the merger of the Railway Budget with the General Budget. |
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| Capital Budget Components | Consists of capital receipts and capital payments, including expenditure on asset acquisition (roads, buildings), loans received from foreign governments, and loans granted to States/UTs. |
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| Revenue vs. Capital Receipts | Historically and generally, Capital receipts are less than revenue receipts in the Union Budget. | UPPCS (Mains) 2009* |
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| Vote on Account | Meant for appropriating funds pending the passing of the budget (to meet short-term expenditure needs). |
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| Policy Cut-Motion | A parliamentary motion with the contextual relationship to the Union Budget. If passed, it proposes reducing the budget demand to Re 1. | UPPCS (Pre) 2017 |
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| Primary Deficit Calculation | Primary Deficit + Interest Payments = Fiscal Deficit. | U.P.P.C.S (Pre) 2010 |
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| Effective Revenue Deficit (ERD) | Introduced in the Union Budget of 2011-12. |
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| Actions to Reduce Fiscal Deficit | Reducing revenue expenditure and rationalizing subsidies. Also, down-sizing bureaucracy and selling/offloading PSU shares can help. |
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| Deficit Financing Impact | Aimed at economic development, but if it fails, it generates Inflation by increasing the money supply. | UPPCS (Pre) 1993, 2016 |
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| Subsidies as Deficit Source | Financial subsidy (like food subsidy) is a major source of deficit in the government's budget. | UPPCS (Mains) 2002 |
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| Fiscal Responsibility and Budget Management Act (FRBM), 2003 | Stipulations included the elimination of revenue deficit by 2007-08; it did not stipulate the elimination of primary deficit by 2008-09. |
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| FRBM Review Committee (N.K. Singh) | Recommended a combined debt-to-GDP ratio of 60% by 2023 (40% Centre, 20% States). |
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| State Borrowing Requirement | Under Article 293(3), a State must take Central Government's consent for raising a loan if it owes outstanding liabilities to the latter. |
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| UPPCS (Pre) 1998 |
| Largest Sources of Tax Revenue (Modern Estimates) | According to Budget Estimates 2022-23, the top three are GST (16%), Corporation Tax (15%), and Income Tax (15%). | UPPCS (Spl.) (Mains) 2004, U.P. Lower Sub. (Pre) 2015 |
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| Taxes Levied by Union, Collected/Appropriated by States | Stamp Duties are levied by the Union (Union List) but collected and appropriated by the States. |
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| Sharing of Central Taxes | After the 80th Amendment (2000), net proceeds of all taxes collected by the Union (minus cess, surcharge, cost of collection) are shareable with the States. | UPPCS (Mains) 2003, 2004 |
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| Indirect Taxes | Examples include Customs duty and Excise duty. Sales Tax (historically). |
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| Tax Relief for Individuals | Investing in National Savings Certificate, Public Provident Fund, and National Savings Scheme provides income tax rebate; Indira Vikas Patra does not. | UPPCS (Pre) 1997 |
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| National Highway Authority of India (NHAI) Funding | The main source of fund for the NHAI is Cess. | U.P.P.C.S (Pre) 2011 |
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| U.P. Lower Sub. (Spl.) (Pre) 2002, 03 |
| 12th FC (C. Rangarajan) | Recommended State share of 30.5 percent. Target for Revenue Deficit of Centre and States was zero percent by 2009-10. | UPPCS (Pre) 2006, UPPCS (Mains) 2008 |
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| 13th FC (Dr. Vijay L. Kelkar) | Recommended State share of 32 percent. Assigned the highest weightage for devolution (47.5%) to Fiscal Capacity Distance. | UPPCS (Mains) 2009, UPPCS (Mains) 2011 |
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| 14th FC (Dr. Y.V. Reddy) | Increased the States' share in the divisible pool from 32% to 42 percent. Did not make recommendations concerning sector-specific grants. |
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| 15th FC (N.K. Singh) | Recommended States' share of 41 percent. Share of Bihar in the divisible pool was 10.06%. |
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