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UPSC > Public Finance in India

Explore popular questions from Public Finance in India for UPSC. This collection covers Public Finance in India previous year UPSC questions hand picked by experienced teachers.

Q 1.

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Which one of the following is a development expenditure?

Irrigation expenditure

B

Administration

C

Debt services

D

Grant-in-aid

Explanation

Developmental Expenditure - the expenditure which is incurred on activities directly related to economic development is called developmental expenditure. Expenditure occurred on education, health care, scientific research, infrastructure, etc.
Non-Developmental Expenduture - Expenditure incurred on general essential services required for normal running of the Govt, is non-developmental expenduture. Expenditure occurred on service relating to general administration, police, judiciary, defense is non developmental expenditure.

Q 2.

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Which of the following is not an example of economic overheads?

A

Schools

B

Sanitary facilities

C

Roads and Railways

Coal mines

Explanation

Coal mines is not an example of economic overheads. Economic overhead is capital investment into the infrastructure which should encourage new industrial growth and social well being. The other three schools, sanitary facilities and roads and railways are economic overheads. Overheads are indirect cost which cannot be traced into any specified cost objects.

Q 3.

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Development expenditure of the Central government does not include

defence expenditure

B

expenditure on economic services

C

expenditure on social and community services

D

grant to states

Explanation

All expenditures that promote economic growth and development are termed as development expenditure. Expenditure on infrastructure development, public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. Expenditures in the nature of consumption such as Defence, interest payments, expenditure on law and order, public administration, do not create any productive asset which can bring income or returns to the government are non-development expenditure. Govt, grant is a financial award given by the federal State local Govt, to an eligible grantee.

Q 4.

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Which of following statement is true about the Primary deficit?

A

It is difference between Revenue Receipts and Revenue Expenditure

B

It is difference between Capital Receipts and Interest Payment

It is difference between the Fiscal Deficit and Interest Payment

D

It is addition of Fiscal Deficit and Interest Payment

Q 5.

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Consider the following statements in regard to zero base budgeting (ZBB):
(1) Existing Government programmes can be discarded under ZBB if they are found to be outdated.
(2) ZBB is difficult to be applied to Human Development programmes as the outcome of such programme is intangible in nature.
Which of the statements given above is/are correct?

A

1 only

B

2 only

Both 1 and 2

D

Neither 1 nor 2

Explanation

Zero-based budgeting is an approach to planning and decision-making which reverses the working process of traditional budgeting. In zero-based budgeting, every line item of the budget must be approved, rather than only changes. During the review process, no reference is made to the previous level of expenditure. Regarding Zero Base Budgeting (ZBB) existing government programme can be discarded under ZBB if they are found to be outdated. Moreover, ZBB is difficult to be applied to Human Development programmes as the outcome of such programmes is intangible in nature.

Q 6.

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Which of the following are correct in regard to the austerity measures taken by a country going through adverse economy conditions:
(1) These measures include a reduction in spending
(2) These measures include an increase in tax
(3) These measures include reduction in budget deficit
Select the correct answer using the codes given below:

A

1 and 2 only

B

1 and 3 only

C

2 and 3 only

1, 2 and 3

Explanation

Austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increases. This is done in economic crisis situation to improve the credit rating of the countries going through adverse economic condition.

Q 7.

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Which of the following is not a part of India’s National Debt?

National savings certificates

B

Dated Government securities

C

Provident funds

D

Life insurance policies

Explanation

Government debt is the debt owed by central government. Government usually borrows by issuing securities, government bonds, bills through Provident funds, etc. However, pension policies are not included in the list.

Q 8.

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Which of the following will not contribute to a higher current account deficitRs
(1) Increase in price of crude oil
(2) Rise in export of software sendees
(3) Rise in import of services
Choose the correct answer using the codes given below:

A

1 and 2 only

2 only

C

3 only

D

1 and 3 only

Explanation

Current account deficit is a measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports, increase in crude oil price and rise in import of services oil increase the current account deficit. However, increase in exports will reduce the deficit.

Q 9.

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Consider the following :
1. Market borrowing
2. Treasury bills
3. Special securities issued to RB1
Which of these is/are components of internal debt?

A

1 only

B

1 and 2

C

2 only

1, 2 and 3

Explanation

All these statements are components of internal debt.

Q 10.

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In India, deficit financing is used for raising resources for:
1. redemption of public debt
2. adjusting the balance of payments
3. reducing the foreign debt
4. economic development
Which of the above statements is/are correct ?

4 only

B

None of the above

C

2 and 3 only

D

1 and 2 only

Explanation

Deficit financing is a pragmatic tool of economic development and has been used by Indian govt, to obtain necessary resources to finance the five year plans.

Q 11.

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Deficit financing leads to inflation in general, but it can be checked if:

A

government expenditure leads to increase in the aggregate supply in ratio of aggregate demand

B

only aggregate demand is increased

C

all the expenditure is denoted national debt payment only

All of the above

Explanation

The definition of deficit financing is likely to vary with the purpose for which such a definition is needed.
In one sense by deficit financing we mean the excess of government expenditure over its normal receipts raised by taxes, fees, and other sources. In this definition, such expenditure whether obtained through borrowing or from the banking system measures the budget deficit. Deficit financing is said to have been used whenever government expenditure exceeds its receipts. In underdeveloped countries deficit financing may be in two forms:
(i) Difference between overall revenue receipts and expenditure
(ii) Deficit financing may be equal to borrowing from the banking system of the country

Q 12.

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Match List I with List II and select the correct answer using the codes given below the lists:

3 1 2 4

B

4 3 2 1

C

1 3 2 4

D

3 1 4 2

Explanation

Fiscal deficit - Excess of total expenditure over total receipts less borrowings. Budget deficit - Excess of total expenditure over total receipts. Revenue deficit-Excess of total expenditure over revenue receipts. Primary deficit-Excess of total expenditure over total receipts less borrowings & Interest payments.

Q 13.

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Which of the following is / are the example (s) of Transfer Payment(s)?
1. Unemployment Allowance
2. Payment of salary
3. Social Security Payment
4. Old age Pension
Select the correct answer using the code given below:

A

1 and 3 only

B

1, 2 and 3 only

1, 3 and 4 only

D

None of the above

Explanation

Transfer payment is a payment of money to individuals by government without taking any goods or service. Examples :
• Unemployment allowance
• Social security payments
• Old age pension
• Student grant
• Subsidies to farmers, exporters & manufacturer

Q 14.

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Consider the following statements about Sinking Fund
1. It is a method of repayment of public debt.
2. It is created by the government out of budgetary revenues every year.
Which of the statements given above is/are contact?

Only 1

B

Only 2

C

Both 1 and 2

D

Neither 1 nor 2

Explanation

A Sinking Fund is a fund created by the government and gradually accumulated every year by setting aside a part of current public revenue in such a way that it would be sufficient to pay off the funded debt at the time of maturity. Under this method, the aggregate burden of public debt is least felt, as the burden of taxing the people to repay the debt is spread evenly over the period of the accumulation of the fund. The preferable alternative for the government is to raise a new loan and credit the proceeds of sinking fund. It is a separate fund established by a government.

Q 15.

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{tex}\mathrm{Statement \ I}{/tex}: Deficit financing does not lead to inflation if adopted in small doses.
{tex}\mathrm{Statement \ II}{/tex}: Deficit financing is an often used tool for financing budgetary deficits.

A

Both the Statements are individually true and Statement II is the correct explanation of Statement

Both the Statements are individually true, but Statement II is not the correct explanation of Statement I

C

Statement I is true, but Statement II is false

D

Statement I is false, but Statement II is true

Explanation

Deficit Financing is an expansionist device of currency machine and is accompanied by inflation and has many adverse effects on the economy, lt has also been compared to a drug market in red 'Poison' which is prescribed for a certain purpose and has to be administered in small regulated dose. When the outlay of a government exceeds its tax revenues, the government budget is said to be in deficit; government spending in excess of tax receipts is known as deficit spending. Governments usually issue bonds to match their deficit.

Q 16.

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The concept which tries to ascertain the actual deficit in the revenue account after adjusting for expenditure of capital nature is termed as

A

revenue deficit

effective revenue deficit

C

fiscal deficit

D

primary deficit

Explanation

Effective Revenue Deficit is basically revenue deficit excluding expenditure on capital generation form grants from the Centre to the states, lt signifies the amount of capital receipts that are being used for actual consumption expenditure of the Government. It is a new term introduced in the Union Budget 2011-12. It has now become a new fiscal parameter.

Q 17.

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Second demonetization of currency notes in independent India took place during the tenure of ............ as Minister of Finance, Gol.

H.M. Patel

B

Morarji Desai

C

C.D. Deshmukh

D

Vishwanath Pratap Singh

Explanation

The Janta Party coalition government led by Morar Ji Desai demonetized the currency notes of Rs. 1,000. Rs. 5,000 and Rs. 10,000 on 16 January 1978 to curb counterfeit currency and black money. The Finance Minister was Haribhai M. Patel at the time.

Q 18.

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India’s first Long term Fiscal policy was adopted during the tenure of.......... as Minister of Finance, Gol.

A

Dr. Manmohan Singh

B

Yashvant Sinha

Vishwanath Pratap Singh

D

Pranab Mukherji

Explanation

Finance Minister Vishwanath Pratap Singh's Long Tenn Fiscal Policy (LTFP) unveiled in January, 1986.

Q 19.

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Which Finance Commission has used forest cover as a criterion for horizontal distribution of resources in India?

A

10th Finance Commission

B

12th Finance Commission

C

13th Finance Commission

14th Finance Commission

Explanation

In recommending horizontal distribution, the 14th Finance Commission has used broad parameters of population (1971) and changes of population since, income distance, forest cover, and area.

Q 20.

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"Bihar Economics Survey", for the first time, was published for the financial year

A

2004-05

2006-07

C

2008-09

D

2009-10

E

None of the above/More than one of the above

Explanation

Bihar economic survey for the first time was published in the year 2006-07.

Q 21.

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Fiscal Policy in India is formulated by

A

the Reserve Bank of India

B

the Planning Commission

the Finance Ministry

D

the Securities and Exchange Board of India

Explanation

The Department of Economic Affairs (DEA) under Ministry of Finance is the nodal agency of the Union Government to formulate and monitor country's economic policies and programmes having a bearing on domestic and international aspects of economic management.

Q 22.

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The government can influence private sector expenditure by
1. taxation
2. subsidies
3. macro-economic policies
4. grants
Select the correct answer using the codes given below

A

1, 2, 3 and 4

B

1, 2 and 4

1, 2 and 3

D

3 and 4

Explanation

The government influences private sector expenditure by taxation, subsidies and macro-economic policies.

Q 23.

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Which of the following are included in the category of direct tax in India?
1. Corporation tax
2. Tax on income
3. Wealth tax
4. Customs duty
5. Excise duty
Select the correct answer using the codes given below

1, 2 and 3

B

1, 2, 4 and 5

C

2 and 3

D

1, 3, 4 and 5

Explanation

Corporation Tax, Wealth Tax and Income Tax are in the category of direct tax.

Q 24.

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In India, the price of petroleum products has been deregulated mainly to

reduce the burden of subsidies given to the oil companies

B

discourage the exploration of oil reserves in the country

C

discourage the demand for private vehicles

D

curb the use of black money in the economy

Explanation

The sharp decline in crude oil price helped the government to deregulate the price of diesel and thus reduce a huge burden of subsidy on the exchequer, India if not a producing giant, is certainly a refining hub where it refines and markets around 220 metric million tonnes of petroleum products. Out of this around 160 mint is used for domestic consumption while the rest is used for exports. Therefore, the drop in price of oil will be a blessing for the Indian refineries and the oil marketing companies.

Q 25.

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Corporation tax is imposed by

A

State Government

Central Government

C

Local Government

D

Stale as well as Central Government

Explanation

Corporation Tax is imposed by Central Government.