Daily Current Affairs (MCQ) | Date 08.02.22

Q1. Consider the following statements

1. A fiscal deficit takes place either due to a revenue deficit or a major hike in capital expenditure
2. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets

Which of the above is/are correct?

a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2

Answer : c

Why is the Question ?

Definition of 'Fiscal Deficit'
Definition: The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. 

Description: The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government.
Generally, a fiscal deficit takes place either due to a revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development.
A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds.

Q2. Consider the following statements about the Public debt

1. Internal debt constitutes over 93 per cent of the overall public debt
2. Debt contracted against the Consolidated Fund of India is known as public debt
3. The sources of public debt are dated government securities (G-Secs), treasury bills, external assistance, and short-term borrowings

Which of the above statements are correct?

a. 1 and 2 only
b. 2 and 3 only
c. 1 and 3 only
d. 1, 2 and 3

Answer : d

Why is the Question ?

Public debt is the total amount, including total liabilities, borrowed by the government to meet its development budget. It has to be paid from the Consolidated Fund of India. The term is also used to refer to overall liabilities of central and state governments, but the Union government clearly distinguishes its debt liabilities from the states’.
The central government broadly classifies its liabilities into two categories — debt contracted against the Consolidated Fund of India, and public account.
Over the years, the Union government has followed a considered strategy to reduce its dependence on foreign loans in its overall loan mix. Internal debt constitutes over 93 per cent of the overall public debt. Internal loans that make up for the bulk of public debt are further divided into two broad categories – marketable and non-marketable debt.
The sources of public debt are dated government securities (GSecs), treasury bills, external assistance, and short-term borrowings.
According to the Reserve Bank of India Act, 1934, the RBI is both the banker and public debt manager for the government. The RBI handles all the money, remittances, foreign exchange and banking transactions. The Union government also deposits its cash balance with the RBI.
The Union government’s liabilities account for a little over 46 per cent of India’s gross domestic product (GDP). However, if the public debt is calculated as general government liabilities, which also includes the liabilities of states, this goes up to 68 per cent of the country’s GDP.

Q3. Consider the following statements

1. In 2022-23, the states will be allowed a fiscal deficit of 4 per cent of GSDP
2. The overall liabilities of both the Union government and states are known as General Government Debt (GGD)

Which of the above is/are correct?

a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2

Answer : c

Why is the Question ?

In 2022-23, in accordance with the recommendations of the 15th Finance Commission, the states will be allowed a fiscal deficit of 4 per cent of GSDP of which 0.5 per cent will be tied to the power sector reforms, for which the conditions have already been communicated in 2021-22.
Conventionally, the states’ borrowing used to be capped at 3% of GSDP or thereabouts, and the bulk of the borrowings occurred in the second half of a fiscal year.
Constitutionally, states need prior approval of the Centre for undertaking market borrowings. The states, in coordination with the Reserve Bank of India (RBI), schedule the actual borrowings, subject to the threshold.
The Union government clearly distinguishes its debt liabilities from those of the states. It calls overall liabilities of both the Union government and states as General Government Debt (GGD) or Consolidated General Government Debt.

Q4. What is the correct explanation of the “Agile approach” as discussed in the economic survey 2021-2022?

a. Short-term policy responses tailored to an evolving situation
b. Rapid application of Artificial intelligence for economic growth
c. Strategy to reduce the fiscal deficit in medium-term
d. Strategy to implement social schemes in a shorter period during a crisis like a pandemic

Answer : a

Why is the Question ?

As per the Agile approach, short-term policy responses can be tailored to an evolving situation rather than what a model may have predicted.
The short-term policy response is possible because of the explosion of real-time data that allows for constant monitoring. Such information includes GST collections, digital payments,
satellite photographs, electricity production, cargo movements, internal/external trade, infrastructure roll-out, delivery of various schemes, mobility indicators etc.
The “Agile approach” is based on feedback loops, real-time monitoring of actual outcomes, flexible responses, safety-net buffers and so on.
Planning is not done in the Agile approach as a deterministic prediction of the flow of events. Still, planning is relevant in the framework – mostly for scenario analysis, identifying vulnerable sections, and understanding policy options.

Q5. Consider the following statements

1. The Gross fixed capital formation measures the net increase in fixed capital by both public and private sector
2. It is a component of the Expenditure method of calculating GDP

Which of the above is/are correct?

a. 1 only
b. 2 only
c. Both 1 and 2
d. Neither 1 nor 2

Answer : c

Why is the Question ?

Gross Fixed Capital Formation
Definition: Gross fixed capital formation is essentially a net investment. It is a component of the Expenditure method of calculating GDP.
To be more precise Gross fixed capital formation measures the net increase in fixed capital.
Gross fixed capital formation includes spending on land improvements, (fences, ditches, drains, and so on) plant, machinery, and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings. Disposal of fixed assets is taken away from the total.
The Centre predicts that gross fixed capital formation (GFCF) — a proxy for private and public investment in infrastructure — will exceed the pre-pandemic period of 2019-20 in absolute terms as well as the share of gross domestic product, in real and nominal terms.