| Direction: Read the following passage carefully and answer the question given below it. Certain words are given in bold to help you locate them while answering some of the questions. |
| The Indian economy is currently going through a bumpy phase with a slowdown in GDP growth, a higher trajectory of retail inflation, risky current account deficit and instability in the banking sector. The difficult economic situation coupled with the ensuing State elections and the forthcoming general election has some political compulsions for the finance minister. In these circumstances, the likelihood of what might be called a "bold" budget becomes a distant reality. More on the radar will be a budget keeping in mind all the stakeholders. Pleasing all is a near-impossibility. But all will benefit if the priority is given to fiscal prudence with an emphasis on fiscal consolidation, budget integrity and fiscal transparency. Therefore, the budget should focus on continuation of the fiscal deficit and debt targets according to the FRBM Act, in letter and in spirit. The Union Budget 2018-19 should focus on achieving qualitative fiscal sustainability, that is, attaining a fiscal consolidation target under FRBM without cutbacks in non- defence capital outlay and developmental expenditure, particularly economic and social services. In order to ensure this, a three-pronged strategy is important: (A) fiscal empowerment (maximise revenue to budget to create fiscal space); (B) expenditure benchmarking in respect of non-defence capital outlay and social sector expenditure; and (C) strengthening cooperative fiscal federalism. The integrity of the budget exercise critically hinges on credible fiscal arithmetic. The budget has an inherent bias towards overestimating the non-defence capital expenditure to show that it is growth-inducing, underestimating the deficit targets showing a lower deficit level to show it is on the firm path of fiscal consolidation, and overestimating tax revenue, disinvestment receipts and also overestimating non-tax receipts to show a lower deficit target. This is a game with numbers that all sides play, and a temptation best resisted at this critical time. It may be mentioned the budget making process has lags and public memory is short. For example, the Budget will set out the estimates for 2018-19, revised estimates for 2017-18 (a lag of one year) and accounts for 2016-17 (a lag of two years). Because of the time lag, public discussions do not centre around the fiscal marksmanship (deviation of the revised estimates/accounts from the original budget estimates). But this is an important aspect as it throws light on budget integrity and fiscal transparency. Consider the outcome of budget estimates for 2017-18 when translated into revised estimates and accounts: the first eight months' data (April-November, 2017) as presented by the Controller General of Accounts (CGA) presents a dismal picture of the key deficit indicators, suggesting that the three deficit indicators would exceed the budgeted targets for 2017-18. |
| (A) In order to show that non-defence capital expenditure is growth inducing, it is overestimated. (B) To show that the economy is on the firm path on consolidation, deficit target is underestimated. (C) To show a lower deficit target, tax revenue, disinvestment receipts and non-tax receipts are underestimated. |
A) Only (A)
B) Only (B)
C) Only (C)
D) Only (A) and (B)
E) All (A), (B) and (C)
Correct Answer: C
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