UPSC Prelims 2010 Q67: Indian Economy – Fiscal Policy & Budget
- (a) 1, 2 and 3
- (b) 2, 3 and 4
- (c) 1, 2 and 4
- (d) 3 and 4 only
Answer: (b) 2, 3 and 4
Explanation
Measures to control fiscal deficit in India
Fiscal deficit control requires either raising government revenue or cutting government expenditure; not every governance reform qualifies as a direct fiscal-deficit tool.
| Measure | Verdict | Reason |
|---|---|---|
| 1. Encouraging FDI inflows | Incorrect | FDI primarily boosts private investment and growth; it does not directly reduce the government's own fiscal deficit figure |
| 2. Privatization of higher educational institutions | Correct | Shifting higher education to private providers reduces the government's own subsidy/expenditure burden on these institutions, easing the fiscal deficit |
| 3. Down-sizing of bureaucracy | Correct | Cutting the wage and pension bill by reducing bureaucracy size directly lowers government expenditure |
| 4. Selling/off-loading PSU shares (disinvestment) | Correct | Disinvestment proceeds are a direct, well-established tool to raise non-tax revenue, reducing the fiscal deficit |
Fiscal deficit control measures:
| Point | Detail |
|---|---|
| Expenditure-side | Privatizing higher education (cuts subsidy burden), down-sizing bureaucracy (cuts wage bill) |
| Revenue-side | Disinvestment of PSU shares |
| Not direct | FDI promotion — boosts the economy broadly, but isn't a direct government fiscal-deficit lever |
Answer: (b) 2, 3 and 4.
Why each option is right or wrong
- (a) Incorrect. Measure 1 (FDI) is not a direct fiscal-deficit tool, so including it while omitting measure 4 is wrong.
- (b) CORRECT. Privatizing higher education, down-sizing bureaucracy, and disinvestment all directly ease the government's own fiscal deficit, by cutting expenditure or raising revenue.
- (c) Incorrect. Measure 1 (FDI) is not a direct fiscal tool, so '1, 2 and 4' wrongly includes it.
- (d) Incorrect. Measures 2 (privatization) is also a valid fiscal-deficit measure, so '3 and 4 only' is incomplete.
Key point
Fiscal deficit control measures: privatizing higher education (cuts subsidy burden), down-sizing bureaucracy (cuts wage bill), and disinvestment (raises revenue) — ALL directly affect government finances. Encouraging FDI boosts the broader economy but is NOT a direct fiscal-deficit tool.
Remember
Measures to control India's fiscal deficit: privatization of higher education, down-sizing bureaucracy, and disinvestment of PSU shares — NOT FDI promotion, which is a broader economic measure.
Common mistakes
- Assuming FDI promotion, because it's good for the economy, must also be a direct fiscal-deficit control measure.
- Missing that privatizing higher education directly reduces the government's own subsidy/expenditure burden.
- Not treating disinvestment as the most direct, well-established revenue-side fiscal tool.
Exam tip
Fiscal deficit = government's own revenue-expenditure gap. FDI helps the broader economy, but doesn't directly change THIS specific government balance — privatization, down-sizing, and disinvestment do.
Sources
- Ministry of Finance, Government of India — Economic Survey 2009–10 (fiscal consolidation)
- Fiscal Responsibility and Budget Management Act, 2003