Objectives, Revenue vs Capital classification (receipts and expenditure), Budget types, and Deficit calculations. Q25–Q30 are CUET-level.
1
A Government Budget is best defined as:
AA statement of the ESTIMATED receipts and estimated expenditure of the government for a FISCAL YEAR, requiring Parliamentary approval before implementation
BA record of the ACTUAL income and spending of the government from the PREVIOUS year only
CA private financial document not requiring any legislative approval
DA monthly financial report published by the RBI
Answer: A — Estimated receipts/expenditure for a fiscal year, needing Parliamentary approval. The Government Budget is FUTURE-ORIENTED — it presents ESTIMATES (forecasts) for the UPCOMING fiscal year (1 April to 31 March in India), NOT a record of past actuals. It is a CONSTITUTIONAL requirement (Article 112, the “Annual Financial Statement”) that MUST be approved by Parliament before the government can legally spend the proposed amounts.
2
📋 CASE: During an economic boom with rising inflation, the Finance Minister announces the budget will CUT government spending and RAISE certain taxes. Which objective of the government budget is this action primarily serving?
AEconomic Stability — using the budget as a fiscal policy tool to COOL DOWN an overheating economy experiencing Excess Demand, directly connecting to the contractionary measures studied in Chapter 9
BRedistribution of Income and Wealth
CManagement of Public Enterprises
DReducing Regional Disparities
Answer: A — Economic Stability. This is a TEXTBOOK example of using the budget for the “Economic Stability” objective — directly building on Chapter 9’s coverage of Excess Demand. During a BOOM/inflation (Excess Demand), the government applies CONTRACTIONARY fiscal policy: CUTTING its own spending (reduces AD directly) and RAISING taxes (reduces disposable income, reduces Consumption) — both actions work to COOL DOWN the overheating economy and bring AD back toward the full-employment level, controlling inflation.
3
The government imposes a HIGHER tax on cigarettes and provides a SUBSIDY for electric vehicles. Which budget objective does this BEST represent?
AReallocation of Resources — using taxes to DISCOURAGE socially undesirable consumption (cigarettes) and subsidies to ENCOURAGE desirable production/consumption (electric vehicles), redirecting resources toward socially beneficial activities
BManagement of Public Enterprises
CEconomic Stability
DReducing Regional Disparities
Answer: A — Reallocation of Resources. This is the CLASSIC example of the “Reallocation of Resources” objective — the government uses TAXES to make harmful goods (cigarettes) MORE EXPENSIVE (discouraging consumption) and SUBSIDIES to make beneficial goods (electric vehicles) CHEAPER (encouraging production/consumption). This REDIRECTS the economy’s resources AWAY from socially undesirable activities and TOWARD socially desirable ones, without directly banning anything.
4
Which TWO components together make up the “Revenue Budget”?
ARevenue Receipts + Revenue Expenditure
BCapital Receipts + Capital Expenditure
CRevenue Receipts + Capital Expenditure
DCapital Receipts + Revenue Expenditure
Answer: A — Revenue Receipts + Revenue Expenditure = Revenue Budget. The Government Budget has TWO main components: the REVENUE BUDGET (covering Revenue Receipts and Revenue Expenditure — the day-to-day, recurring financial activities) and the CAPITAL BUDGET (covering Capital Receipts and Capital Expenditure — the asset/liability-related financial activities). Understanding this basic 2x2 structure (Revenue/Capital × Receipts/Expenditure) is essential before classifying individual transactions.
5
What is the KEY TEST to determine whether a government receipt is a “Revenue Receipt”?
AIt must NEITHER create a liability NOR reduce an asset for the government
BIt must always come exclusively from foreign sources
CIt must always exceed Rs 1,000 crore in value
DIt must be collected only once every five years
Answer: A — Neither creates a liability nor reduces an asset. This is the FUNDAMENTAL TEST for Revenue Receipts. If money comes IN to the government WITHOUT creating any future repayment OBLIGATION (liability) and WITHOUT reducing any government-owned ASSET, it qualifies as a Revenue Receipt. Tax revenue is the classic example — when you pay income tax, the government owes you NOTHING back, and no government asset is reduced.
6
Which of the following BEST distinguishes a Direct Tax from an Indirect Tax?
ADirect Tax: the BURDEN CANNOT be shifted to another person (levied directly on the taxpayer’s own income/wealth, like Income Tax); Indirect Tax: the burden CAN be shifted (levied on goods/services, like GST, where sellers pass the tax cost to buyers)
BDirect Tax is always higher in amount than Indirect Tax
CDirect Tax is collected only from foreign companies
DIndirect Tax is collected only once every ten years
Answer: A — Direct Tax burden cannot shift; Indirect Tax burden can shift. DIRECT TAXES (Income Tax, Corporate Tax) are levied DIRECTLY on the person/entity earning income — that SAME person bears the FULL burden; it cannot be passed on to anyone else. INDIRECT TAXES (GST, Customs Duty, Excise Duty) are levied on GOODS/SERVICES — while the SELLER initially pays this tax to the government, they typically SHIFT the burden to the BUYER by incorporating it into the final price. This SHIFTABILITY of burden is the defining distinction.
7
Profits and dividends received by the government from Public Sector Undertakings (PSUs) are classified as:
ANon-Tax Revenue Receipt — this income does not come from taxation, yet it neither creates a liability nor reduces an asset for the government, qualifying it as a Revenue Receipt (specifically, Non-Tax type)
BCapital Receipt, since it involves government-owned companies
CCapital Expenditure
DRevenue Expenditure
Answer: A — Non-Tax Revenue Receipt. When a PSU pays DIVIDENDS/PROFITS to the government (its owner), this is money COMING IN — but it is NOT from taxation (hence “Non-Tax”), and it does NOT create any liability or reduce any asset for the government (the government simply receives its OWNERSHIP RETURN, similar to how a shareholder receives dividends). This makes it a Non-Tax REVENUE Receipt, alongside interest receipts, fees, fines and grants.
8
What is the KEY TEST to determine whether a government receipt is a “Capital Receipt”?
AIt must EITHER create a liability OR reduce an asset for the government (or both)
BIt must come exclusively from tax collections
CIt must always be smaller than Rs 100 crore
DIt must be collected only from state governments
Answer: A — Either creates a liability OR reduces an asset. This is the EXACT OPPOSITE test compared to Revenue Receipts. If a receipt EITHER creates a future repayment obligation (liability, like borrowing) OR REDUCES a government-owned asset (like selling PSU shares or receiving loan repayments), it is classified as a Capital Receipt — regardless of which of the two conditions applies (or if BOTH apply).
9
📋 CASE: The government sells 26% of its shareholding in a public sector steel company to private investors, raising Rs 5,000 crore. How is this transaction classified?
ACapital Receipt (Disinvestment) — selling ownership shares REDUCES the government’s ASSET (its ownership stake in the company), satisfying the Capital Receipt test
BRevenue Receipt, since it involves selling company shares
CRevenue Expenditure
DCapital Expenditure
Answer: A — Capital Receipt (Disinvestment). DISINVESTMENT (selling government shareholding in a PSU) directly REDUCES a government ASSET — the government previously OWNED 26% of this company (an asset on its books), and after the sale, it owns LESS (or none). Since this satisfies the “reduces an asset” condition of the Capital Receipt test, it is CLASSIFIED as a Capital Receipt, specifically under the “Disinvestment” category, alongside Borrowings and Recovery of Loans.
10
📋 CASE: A state government repays Rs 200 crore of an OLD loan that it had previously taken from the Central Government. From the CENTRAL Government perspective, how is this Rs 200 crore RECEIPT classified?
ACapital Receipt (Recovery of Loans) — the Central Government previously held a LOAN RECEIVABLE (an asset) from the state; receiving repayment REDUCES this asset, satisfying the Capital Receipt test
BRevenue Receipt, since money is simply coming into the treasury
CRevenue Expenditure for the Central Government
DThis transaction has no classification under budget accounting
Answer: A — Capital Receipt (Recovery of Loans). Before repayment, the Central Government held a LOAN RECEIVABLE from the state — this is an ASSET on the Central Government’s books (money owed TO them). When the state REPAYS Rs 200 crore, this ASSET (the outstanding loan) REDUCES by that amount. Since the Capital Receipt test is satisfied (an asset is reduced), this repayment is classified as a Capital Receipt, specifically “Recovery of Loans.”
11
What is the KEY TEST to determine whether government spending is “Capital Expenditure”?
AThe spending must EITHER create an asset OR reduce a liability for the government (or both)
BThe spending must always exceed Rs 10,000 crore
CThe spending must be directed exclusively toward government employee salaries
DThe spending must occur only in the final month of the fiscal year
Answer: A — Either creates an asset OR reduces a liability. This is the DEFINING test for Capital Expenditure. If government spending results in the CREATION of a long-term ASSET (like a road, building or machinery) OR results in the REDUCTION of an existing LIABILITY (like repaying a past loan), it qualifies as Capital Expenditure — regardless of the specific amount involved.
12
📋 CASE: The government spends Rs 2,000 crore constructing a new national highway. How is this expenditure classified?
ACapital Expenditure — constructing a highway CREATES a long-term physical ASSET for the government, satisfying the Capital Expenditure test
BRevenue Expenditure, since it is a large one-time payment
CRevenue Receipt
DCapital Receipt
Answer: A — Capital Expenditure. Building a national highway CREATES a durable, long-term ASSET (the physical road infrastructure) that will provide benefits for MANY years into the future. This directly satisfies the “creates an asset” condition of the Capital Expenditure test, regardless of the transaction size. Compare this with paying SALARIES to highway maintenance workers — THAT would be Revenue Expenditure (no lasting asset created), while the CONSTRUCTION itself creates the physical road asset.
13
📋 CASE: The government pays Rs 300 crore in pensions to retired government employees. How is this expenditure classified?
ARevenue Expenditure — pension payments do NOT create any government asset and do NOT reduce any government liability; they are recurring, consumption-type payments
BCapital Expenditure, since pensions are paid to a large number of people
CCapital Receipt
DNon-Tax Revenue Receipt
Answer: A — Revenue Expenditure. Pension payments are a CLASSIC example of Revenue Expenditure — they are RECURRING, day-to-day type payments that provide NO lasting asset to the government (the money simply goes to the pensioner for their consumption/livelihood) and do NOT reduce any government liability (pensions are not loan repayments). This satisfies the “neither creates asset nor reduces liability” test for Revenue Expenditure.
14
📋 CASE: The government repays Rs 1,000 crore of a past loan taken from the World Bank. How is this expenditure classified?
ACapital Expenditure — repaying the loan REDUCES an existing LIABILITY (the outstanding World Bank debt), satisfying the Capital Expenditure test, even though NO new physical asset is created
BRevenue Expenditure, since it is simply a repayment
CRevenue Receipt
DCapital Receipt
Answer: A — Capital Expenditure. This tests the SECOND part of the Capital Expenditure definition — expenditure qualifies if it EITHER creates an asset OR reduces a liability. Repaying the World Bank loan does NOT create any NEW physical asset, but it DOES REDUCE an EXISTING LIABILITY (the outstanding loan amount owed to the World Bank shrinks). Since EITHER condition is sufficient (not both required), this loan repayment IS classified as Capital Expenditure.
15
A “Balanced Budget” occurs when:
ATotal Estimated Receipts EXACTLY EQUAL Total Estimated Expenditure
BTotal Estimated Receipts EXCEED Total Estimated Expenditure
CTotal Estimated Expenditure EXCEEDS Total Estimated Receipts
DThe government has zero receipts and zero expenditure
Answer: A — Receipts exactly equal Expenditure. A Balanced Budget means the government plans to collect EXACTLY the same amount it plans to spend — no surplus is generated, and no deficit/borrowing is needed. This is DIFFERENT from a Surplus Budget (B, receipts exceed expenditure) and a Deficit Budget (C, expenditure exceeds receipts, which is the MOST COMMON scenario for India and most developing economies).
16
The formula for calculating Revenue Deficit is:
ARevenue Deficit = Revenue Expenditure − Revenue Receipts
BRevenue Deficit = Total Expenditure − Total Receipts
CRevenue Deficit = Capital Expenditure − Capital Receipts
DRevenue Deficit = Fiscal Deficit − Interest Payments
Answer: A — Revenue Deficit = Revenue Expenditure minus Revenue Receipts. Revenue Deficit SPECIFICALLY looks at the REVENUE ACCOUNT only (ignoring Capital transactions entirely) — it measures the shortfall when Revenue Expenditure (day-to-day spending) exceeds Revenue Receipts (day-to-day income). Option D describes PRIMARY Deficit instead, a completely different measure.
17
📋 CASE: Revenue Receipts = Rs 600 crore, Revenue Expenditure = Rs 750 crore. Calculate the Revenue Deficit:
ARevenue Deficit = Rs 1,350 crore (adding both figures)
BRevenue Deficit = Revenue Expenditure − Revenue Receipts = 750 − 600 = Rs 150 crore
CRevenue Deficit = Rs 600 crore
DRevenue Deficit = Rs 750 crore
Answer: B — Revenue Deficit = Rs 150 crore. Revenue Deficit = Revenue Expenditure − Revenue Receipts = Rs 750 crore − Rs 600 crore = Rs 150 crore. This positive Revenue Deficit indicates the government’s DAY-TO-DAY expenditure EXCEEDS its day-to-day income, meaning it must borrow (or use capital receipts) even to fund CONSUMPTION-type spending, not just for building assets — generally considered a fiscally UNHEALTHY sign.
18
What does a HIGH Revenue Deficit indicate about a government’s fiscal health?
AThe government is DISSAVING — it must borrow (or rely on capital receipts) even to cover its DAY-TO-DAY, CONSUMPTION-type expenses, meaning borrowed money is being used for CONSUMPTION rather than productive asset-building INVESTMENT, generally considered a NEGATIVE fiscal signal
BThe government has excessive tax revenue and needs to reduce taxes immediately
CThe government economy is growing extremely fast with no fiscal concerns
DThe government has zero borrowing requirements
Answer: A — Indicates dissaving; borrowed money used for consumption, not investment. A HIGH Revenue Deficit is generally viewed NEGATIVELY by economists because it signals the government cannot even cover its ROUTINE, day-to-day expenses (salaries, subsidies, interest payments) from its ROUTINE income (taxes, fees) — forcing it to BORROW (or draw down assets) just to sustain basic government operations, rather than using borrowed funds for PRODUCTIVE, long-term ASSET-BUILDING investment. This represents a form of fiscal “living beyond one’s means.”
19
The formula for calculating Fiscal Deficit is:
AFiscal Deficit = Total Expenditure − (Revenue Receipts + Capital Receipts EXCLUDING Borrowings)
BFiscal Deficit = Revenue Expenditure − Revenue Receipts
CFiscal Deficit = Total Receipts − Total Expenditure
DFiscal Deficit = Primary Deficit + Revenue Deficit
Answer: A — Fiscal Deficit = Total Expenditure minus (Revenue Receipts + Capital Receipts excluding Borrowings). Fiscal Deficit measures the TOTAL BORROWING REQUIREMENT — how much the government MUST borrow to bridge the gap between its TOTAL spending (Revenue + Capital Expenditure) and its NON-BORROWED income (Revenue Receipts + Capital Receipts EXCLUDING the borrowings themselves, since borrowings ARE what we are trying to calculate). Option B describes REVENUE Deficit, a different (narrower) measure.
20
📋 CASE: Total Expenditure = Rs 1,500 crore, Revenue Receipts = Rs 900 crore, Capital Receipts (excluding borrowings) = Rs 150 crore. Calculate the Fiscal Deficit:
AFiscal Deficit = Rs 2,550 crore (adding all figures)
BFiscal Deficit = Total Expenditure − (Revenue Receipts + Capital Receipts excl. borrowings) = 1,500 − (900+150) = 1,500 − 1,050 = Rs 450 crore
CFiscal Deficit = Rs 900 crore
DFiscal Deficit = Rs 600 crore
Answer: B — Fiscal Deficit = Rs 450 crore. Fiscal Deficit = Total Expenditure − (Revenue Receipts + Capital Receipts excluding Borrowings) = 1,500 − (900+150) = 1,500 − 1,050 = Rs 450 crore. This Rs 450 crore represents the TOTAL AMOUNT the government MUST BORROW this year to bridge the gap between its total spending and its non-borrowed income sources.
21
Fiscal Deficit is DIRECTLY EQUAL to which of the following?
AThe TOTAL BORROWING requirement of the government for that fiscal year — it precisely measures how much MUST be borrowed to finance the gap between total spending and non-borrowed income
BThe total tax revenue collected by the government
CThe total value of all government-owned physical assets
DThe exact amount of interest paid on all past loans
Answer: A — Total borrowing requirement. By DEFINITION and CONSTRUCTION, Fiscal Deficit EXACTLY EQUALS the amount the government MUST borrow in that fiscal year. This is because Capital Receipts EXCLUDING borrowings have already been subtracted, along with Revenue Receipts — whatever GAP remains between Total Expenditure and these non-borrowed sources can ONLY be filled through BORROWING, making Fiscal Deficit a direct, precise measure of this borrowing need.
22
Which of the following is a POTENTIAL negative consequence of a persistently HIGH Fiscal Deficit?
A“Crowding Out” of private investment — when the government borrows HEAVILY from the same pool of available funds, it competes with PRIVATE borrowers, potentially pushing up interest rates and making it HARDER/COSTLIER for private businesses to secure loans for their own investment
BAn automatic and permanent reduction in all future taxes
CA guaranteed increase in the country foreign exchange reserves
DComplete elimination of inflation risk in the economy
Answer: A — Crowding Out of private investment. “CROWDING OUT” is a well-known consequence of persistent high Fiscal Deficits: since the government must borrow LARGE amounts from the SAME financial markets that private businesses also use for their own borrowing needs, this INCREASED DEMAND for loanable funds tends to PUSH UP interest rates. Higher interest rates make it MORE EXPENSIVE for PRIVATE firms to borrow for their own investment projects — effectively “crowding out” or displacing private investment in favour of government borrowing.
23
The formula for calculating Primary Deficit is:
APrimary Deficit = Fiscal Deficit − Interest Payments
BPrimary Deficit = Revenue Deficit − Interest Payments
CPrimary Deficit = Fiscal Deficit + Interest Payments
DPrimary Deficit = Total Expenditure − Total Receipts
Answer: A — Primary Deficit = Fiscal Deficit minus Interest Payments. Primary Deficit REMOVES the burden of INTEREST payments on PAST borrowings from the Fiscal Deficit figure, isolating how much of the CURRENT year’s deficit is due to CURRENT fiscal decisions/spending, rather than being “inherited” from PAST debt obligations. Option C is a common trap — it INCORRECTLY adds interest payments instead of subtracting them.
24
📋 CASE: Fiscal Deficit = Rs 500 crore, Interest Payments = Rs 120 crore. Calculate the Primary Deficit:
APrimary Deficit = Rs 620 crore (incorrectly adding)
BPrimary Deficit = Fiscal Deficit − Interest Payments = 500 − 120 = Rs 380 crore
CPrimary Deficit = Rs 500 crore (ignoring interest payments)
DPrimary Deficit = Rs 120 crore
Answer: B — Primary Deficit = Rs 380 crore. Primary Deficit = Fiscal Deficit − Interest Payments = Rs 500 crore − Rs 120 crore = Rs 380 crore. This Rs 380 crore represents the portion of the government’s borrowing requirement that is due to CURRENT YEAR fiscal decisions ONLY, EXCLUDING the Rs 120 crore that must be borrowed JUST to service (pay interest on) PAST debt.
25
[CUET Level] Assertion (A): If the Primary Deficit of a government is exactly ZERO, this means the government has NO borrowing requirement at all for that year.
Reason (R): Primary Deficit = Fiscal Deficit − Interest Payments, so a zero Primary Deficit means Fiscal Deficit also equals zero.
ABoth A and R are true, and R correctly explains A
CA is FALSE (a zero Primary Deficit does NOT mean zero borrowing — it means Fiscal Deficit EXACTLY EQUALS Interest Payments, so the government STILL borrows an amount equal to its interest obligations, just NOT for any additional current spending); R is also FALSE (zero Primary Deficit means Fiscal Deficit EQUALS Interest Payments, NOT that Fiscal Deficit is zero)
BBoth A and R are true, but R does not correctly explain A
DA is true but R is false
Answer: C — Both A and R are false. A is FALSE: Primary Deficit = 0 means Fiscal Deficit = Interest Payments (NOT zero) — the government STILL has a borrowing requirement EQUAL to its interest payment obligation, it just has NO ADDITIONAL borrowing need BEYOND servicing past interest. R is also FALSE: since Primary Deficit = Fiscal Deficit − Interest Payments, setting Primary Deficit=0 gives Fiscal Deficit = Interest Payments, NOT Fiscal Deficit=0 (this would only be true if Interest Payments were ALSO zero, which is unlikely for any government with past debt).
26
[CUET Level] Assertion (A): The sale of a government building to a private company for Rs 50 crore should be classified as a Revenue Receipt.
Reason (R): Revenue Receipts include all receipts that involve government-owned property.
ABoth A and R are true, and R correctly explains A
CA is FALSE (selling a government building REDUCES a government ASSET, which satisfies the Capital Receipt test, NOT Revenue Receipt); R is also FALSE (Revenue Receipts do NOT include property-related transactions that reduce assets — that is precisely the definition of a Capital Receipt instead)
BBoth A and R are true, but R does not correctly explain A
DA is true but R is false
Answer: C — Both A and R are false. A is FALSE: selling a government BUILDING (an asset) directly REDUCES the government’s ASSET base, satisfying the Capital Receipt test — NOT the Revenue Receipt test (which requires NEITHER a liability created NOR an asset reduced). R is also FALSE: it makes an incorrect generalisation — Revenue Receipts specifically EXCLUDE transactions involving asset reduction; such transactions are, BY DEFINITION, classified as Capital Receipts instead (similar to disinvestment or asset sales).
27
[CUET Level — Incorrect Pair] Which of the following classification pairs is INCORRECTLY matched?
AIncome Tax collected from citizens — Revenue Receipt (Tax Revenue)
BGovernment borrowing via bonds — Capital Receipt (creates a liability)
CInterest payments made by the government on past loans — Capital Expenditure — INCORRECT: interest payments do NOT create any new asset and do NOT reduce the loan liability (only PRINCIPAL repayment reduces the liability); interest payments are correctly classified as REVENUE Expenditure
DConstruction of a government hospital — Capital Expenditure (creates an asset)
Answer: C is incorrectly matched. Interest payments are the COST of borrowing (like “rent” paid for using someone else’s money) — they do NOT reduce the underlying LOAN PRINCIPAL (liability); ONLY repaying the principal amount reduces the liability. Interest payments also do NOT create any new asset. This makes interest payments a RECURRING, consumption-type expense — correctly classified as REVENUE Expenditure, NOT Capital Expenditure. This is a FREQUENTLY tested distinction: interest PAYMENT (Revenue Expenditure) versus loan PRINCIPAL repayment (Capital Expenditure, since it reduces the liability).
28
[CUET Level — Case] 📋 Given: Revenue Receipts = Rs 1,000 crore, Revenue Expenditure = Rs 1,300 crore, Capital Receipts (excl. borrowings) = Rs 200 crore, Capital Expenditure = Rs 400 crore, Interest Payments = Rs 100 crore. Calculate ALL THREE deficits:
ARevenue Deficit=Rs 300cr; Fiscal Deficit=Rs 400cr; Primary Deficit=Rs 200cr
BRevenue Deficit = 1,300−1,000 = Rs 300cr. Total Expenditure = 1,300+400 = Rs 1,700cr; Fiscal Deficit = 1,700−(1,000+200) = Rs 500cr. Primary Deficit = 500−100 = Rs 400cr
CRevenue Deficit=Rs 300cr; Fiscal Deficit=Rs 300cr; Primary Deficit=Rs 300cr
DRevenue Deficit=Rs 400cr; Fiscal Deficit=Rs 500cr; Primary Deficit=Rs 600cr
Answer: B — Revenue Deficit=Rs 300cr; Fiscal Deficit=Rs 500cr; Primary Deficit=Rs 400cr. Step 1: Revenue Deficit = Revenue Expenditure−Revenue Receipts = 1,300−1,000 = Rs 300 crore. Step 2: Total Expenditure = Revenue Exp+Capital Exp = 1,300+400 = Rs 1,700 crore. Step 3: Fiscal Deficit = Total Exp−(Revenue Receipts+Capital Receipts excl. borrowings) = 1,700−(1,000+200) = 1,700−1,200 = Rs 500 crore. Step 4: Primary Deficit = Fiscal Deficit−Interest Payments = 500−100 = Rs 400 crore.
29
[CUET Level — Case] 📋 A government report shows: Revenue Deficit = Rs 0 (zero) for a given year. What does this SPECIFICALLY indicate about the government’s fiscal position?
ARevenue Receipts EXACTLY EQUAL Revenue Expenditure — the government is NOT dissaving; ALL its day-to-day expenses are FULLY covered by its day-to-day income, meaning ANY borrowing undertaken (reflected in the Fiscal Deficit, if any) would be used ENTIRELY for CAPITAL/asset-building purposes, not for consumption
BThe government has zero Fiscal Deficit and zero Primary Deficit as well
CThe government collects no tax revenue whatsoever
DThe government has completely eliminated all forms of public debt
Answer: A — Revenue Receipts equal Revenue Expenditure; no dissaving; any borrowing is for capital purposes. A ZERO Revenue Deficit means the government day-to-day INCOME exactly covers its day-to-day EXPENSES — there is NO need to borrow (or use capital receipts) for CONSUMPTION-type spending. This is considered a POSITIVE fiscal signal. IMPORTANTLY, this does NOT mean the Fiscal Deficit is also zero (Option B is a trap) — the government could STILL have a Fiscal Deficit if it borrows money for CAPITAL EXPENDITURE (building infrastructure, an economically justified reason to borrow), since Fiscal Deficit covers BOTH revenue AND capital accounts, while Revenue Deficit covers ONLY the revenue account.
30
[CUET Level — Comprehensive] 📋 Four statements about Government Budget. Identify ALL correct ones: (I) The budget requires Parliamentary approval before implementation. (II) Disinvestment is classified as Revenue Receipt since it does not involve borrowing. (III) A high Fiscal Deficit can lead to Crowding Out of private investment. (IV) Primary Deficit can never exceed the Fiscal Deficit in value (assuming non-negative Interest Payments).
AAll four are correct
B(I), (III) and (IV) are correct; ONLY (II) is incorrect (Disinvestment is a Capital Receipt, since it REDUCES a government asset, regardless of whether borrowing is involved)
COnly (I) and (II) are correct
DOnly (IV) is correct; the rest are incorrect
Answer: B — (I), (III) and (IV) are correct; (II) is incorrect. (I) CORRECT: the budget is a constitutional requirement (Article 112) needing Parliamentary approval. (II) INCORRECT: Disinvestment (selling PSU shares) is a CAPITAL Receipt because it REDUCES a government ASSET — the “no borrowing involved” reasoning is IRRELEVANT, since the Capital Receipt test is about EITHER liability creation OR asset reduction (Disinvestment satisfies the asset-reduction condition). (III) CORRECT: high Fiscal Deficit can crowd out private investment by pushing up interest rates. (IV) CORRECT: since Primary Deficit = Fiscal Deficit − Interest Payments, and Interest Payments are ALWAYS ≥ 0, Primary Deficit can NEVER exceed Fiscal Deficit — subtracting a non-negative number always gives a result LESS THAN OR EQUAL TO the original.
