{"id":1759,"date":"2024-03-29T15:05:55","date_gmt":"2024-03-29T09:35:55","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1759"},"modified":"2024-04-03T07:12:50","modified_gmt":"2024-04-03T01:42:50","slug":"q-consider-the-following-statements-75","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-consider-the-following-statements-75","title":{"rendered":"Q.\u00a0Consider the following statements:"},"content":{"rendered":"\n
    \n
  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.<\/li>\n\n\n\n
  2. The Central Government has domestic liabilities of 21%<\/strong> of GDP as compared to<\/strong> that of 49%<\/strong> of GDP of the State Governments.<\/li>\n\n\n\n
  3. As per the Constitution of India, it is mandatory for a State to take the Central Government\u2019s consent for raising any loan if the former owes any outstanding liabilities to the latter.<\/li>\n<\/ol>\n\n\n\n

    Which of the statements given above is\/are correct?<\/p>\n\n\n\n

      \n
    • 1 only<\/li>\n\n\n\n
    • 2 and 3 only<\/li>\n\n\n\n
    • 1 and 3 only<\/li>\n\n\n\n
    • 1, 2 and 3<\/li>\n<\/ul>\n\n\n\n
      \n

      Answer:<\/strong> (c) 1 and 3 only<\/strong><\/p>\n<\/blockquote>\n\n\n\n

      Debt Profile of the Government<\/h5>\n\n\n\n
        \n
      • India\u2019s public debt profile is relatively stable and is characterised by low currency and interest rate risks.<\/strong><\/li>\n\n\n\n
      • Of the Union Government\u2019s total net liabilities in end-March 2021,\u00a095.1% were denominated in domestic currency<\/strong>, while\u00a0sovereign external debt constituted 4.9%<\/strong>, implying low currency risk.\n
          \n
        • Further, sovereign external debt is entirely from official sources, which insulates it from volatility in the international capital markets<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
        • Furthermore, Public debt in India is primarily contracted at fixed interest rates<\/strong>, with floating internal debt constituting only 1.7% of GDP in end-March 2021. The debt portfolio is, therefore, insulated from interest rate volatility.<\/strong><\/li>\n\n\n\n
        • The\u00a0General Government debt<\/strong>\u00a0(including both State and Centre) has steeply declined from about 88 per cent in FY 2020-21 to about\u00a081 per cent in 2022-23<\/strong>.\n
            \n
          • The\u00a0central government\u2019s debt stood at Rs 155.6 lakh crore or 57.1 per cent of the GDP at the end of March 2023<\/strong>.\n
              \n
            • \u201cThe Central Government\u2019s debt has reduced from 61.5 per cent of GDP in 2020-21 to 57.1 per cent of GDP in FY 2022-23.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
              Fiscal Responsibility and Budget Management Act, 2003<\/h5>\n\n\n\n
                \n
              • The Fiscal Responsibility and Budget Management (FRBM) Bill was introduced in the parliament of India in the year 2000 by the Atal Bihari Vajpayee <\/strong>Government to provide legal backing to the fiscal discipline to be institutionalized<\/strong> in the country. Subsequently, the FRBM Act was passed in the year 2003<\/strong>.<\/li>\n\n\n\n
              • It is an act of the parliament that sets targets for the Government of India to establish financial discipline, improve the management of public funds, strengthen fiscal prudence, and reduce its fiscal deficits.<\/strong><\/li>\n\n\n\n
              • The\u00a0objectives<\/strong>\u00a0of the act are:\n
                  \n
                • Fiscal discipline.<\/li>\n\n\n\n
                • Efficient management of expenditure<\/strong>, revenue and debt.<\/li>\n\n\n\n
                • Macroeconomic stability.<\/li>\n\n\n\n
                • Better coordination between fiscal <\/strong>and monetary policy<\/strong>.<\/li>\n\n\n\n
                • Transparency<\/strong> in the fiscal operation of the Government.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                • It set deficit targets<\/strong> for Union <\/strong>and States<\/strong> to control their deficits.<\/li>\n\n\n\n
                • The target <\/strong>and parameter<\/strong> changed along with amendments<\/strong> in 2012<\/strong>, 2012<\/strong>, 2015 and 2018<\/strong>.<\/li>\n<\/ul>\n\n\n\n
                  \"Fiscal<\/figure>\n\n\n\n
                  Salient Features<\/h6>\n\n\n\n
                    \n
                  • Section 4 (1)<\/strong>\u00a0of the FRBM Act provides that the Central Government shall\n
                      \n
                    • take measures to limit the fiscal deficit up to 3 per cent of GDP<\/strong>.<\/li>\n\n\n\n
                    • endeavor to ensure that by the\u00a0end of Financial Year 2024-25<\/strong>\n
                        \n
                      • the General Government debt<\/strong> does not exceed 60 per cent of GDP<\/strong>.<\/li>\n\n\n\n
                      • the Central Government debt<\/strong> does not exceed 40 per cent of GDP<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                      • not give additional guarantees<\/strong> with respect to any loan on security of the Consolidated Fund<\/strong> of India in excess of one-half per cent of GDP<\/strong>, in any Financial Year<\/strong>.<\/li>\n\n\n\n
                      • endeavor to ensure<\/strong> that the fiscal targets are not exceeded<\/strong> after stipulated target dates.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                      • Under Section 5<\/strong> of the Act, except for certain circumstances<\/strong>, the Act does not allow the Central Government to borrow from Reserve Bank of India (RBI)<\/strong>.<\/li>\n\n\n\n
                      • The FM <\/strong>shall review<\/strong>, on half-yearly basis<\/strong>, the trends in receipts<\/strong> and expenditure <\/strong>in relation to the budget <\/strong>and place before both Houses of Parliament<\/strong> the outcome of such reviews<\/strong>.<\/li>\n<\/ul>\n\n\n\n

                        CAG Audit<\/strong><\/p>\n\n\n\n

                          \n
                        • The 2012 Amendment prescribed for periodical review <\/strong>by the CAG<\/strong> of the compliance of the provisions of FRBM Act<\/strong> by the Government.<\/li>\n<\/ul>\n\n\n\n
                          FRBM Review Committee headed by NK Singh<\/h6>\n\n\n\n
                            \n
                          • The government believed the targets set by FRBM Act were too rigid<\/strong>.<\/li>\n\n\n\n
                          • In 2016<\/strong>, the government set up a committee under NK Singh to review the FRBM Act<\/strong>.<\/li>\n\n\n\n
                          • The committee recommended that the government should\u00a0target a fiscal deficit<\/strong>\u00a0of\u00a03 percent<\/strong>\u00a0of the GDP in years up to March 31, 2020, cut it to\u00a02<\/strong>.8 per cent in 2020-21<\/strong>\u00a0and to\u00a02<\/strong>.5 per cent by 2023<\/strong>.\n
                              \n
                            • The Committee suggested using debt as the primary target for fiscal policy<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                            • Targets set by NK Singh Committee:<\/strong>\n
                                \n
                              • Debt to GDP ratio:<\/strong> The review committee advocated for a Debt to GDP ratio of 60%<\/strong> to be targeted with a 40% limit for the centre<\/strong> and a 20% limit for the states<\/strong>.<\/li>\n\n\n\n
                              • Revenue Deficit Target:<\/strong>\u00a0It should be reduced to\u00a00<\/strong>.8%<\/strong>\u00a0of GDP by March 31, 2023.\n
                                  \n
                                • The minimum annual reduction<\/strong> target was 0<\/strong>.5%<\/strong> of GDP.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                                • Fiscal Deficit Target:<\/strong>\u00a0It should be reduced to\u00a02<\/strong>.5%<\/strong>\u00a0of GDP by March 31, 2023.\n
                                    \n
                                  • The minimum annual reduction<\/strong> target was 0<\/strong>.3%<\/strong> of GDP.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                                    FRBM Act \u2013 Escape Clause<\/h6>\n\n\n\n
                                      \n
                                    • The FRBM Act<\/strong> was amended in 2018<\/strong>, adding Specific details<\/strong> that were given in Section 4(2)<\/strong>.<\/li>\n\n\n\n
                                    • If the escape clause<\/strong> is triggered, RBI<\/strong> is then allowed to participate directly<\/strong> in the primary auction <\/strong>of government bonds<\/strong>, thus formalising deficit financing<\/strong>.<\/li>\n\n\n\n
                                    • FRBM Act Section 4(2)<\/strong>,\u00a0provides for a\u00a0trigger mechanism<\/strong>\u00a0to\u00a0escape deficit control<\/strong>\u2013related clauses<\/strong>\u00a0in the act and the Government can\u00a0over cross the targets<\/strong>\u00a0in the following situations:\n
                                        \n
                                      1. National Security \/ Act of War<\/strong><\/li>\n\n\n\n
                                      2. National Calamity<\/strong><\/li>\n\n\n\n
                                      3. If agriculture output and farm incomes collapse<\/strong><\/li>\n\n\n\n
                                      4. Fall in real output\/GDP growth rate beyond x%<\/strong><\/li>\n\n\n\n
                                      5. Structural reforms <\/strong>in the economy with unanticipated fiscal implications<\/strong><\/li>\n<\/ol>\n<\/li>\n\n\n\n
                                      6. During the above trigger conditions\n
                                          \n
                                        • The government may over cross\/deviate<\/strong> from the fiscal deficit target<\/strong> by up to 0<\/strong>.5% of GDP<\/strong>, as recommended by NK Singh\u2019s FRBM Review Committee<\/strong><\/li>\n\n\n\n
                                        • Individual State Governments<\/strong> may also do similar<\/strong> (e.g. overcross by 0<\/strong>.5% of GSDP<\/strong>), after amending the state FRBM Act accordingly.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                                        • Finance Minister cited structural reform <\/strong>to escape the FRBM targets<\/strong> for 2019-20 <\/strong>and 2020-21<\/strong>.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                                          Which of the statements given above is\/are correct? Answer: (c) 1 and 3 only Debt Profile of the Government Fiscal Responsibility and Budget Management Act, 2003 Salient Features CAG Audit FRBM Review Committee headed by NK Singh FRBM Act \u2013 Escape Clause<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[55],"class_list":["post-1759","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-55"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":55,"label":"2018"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1759","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1759"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1759\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1759"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1759"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1759"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1759"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}