UPSC Prelims 2018 Q9: Indian Economy – Fiscal Policy & Budget

UPSC Prelims 2018, General Studies Paper I · Indian Economy

Consider the following statements: 1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments. 2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments. 3. As per the Constitution of India, it is mandatory for a State to take the Central Government’s consent for raising any loan if the former owes any outstanding liabilities to the latter. Which of the statements given above is/are correct?

(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: (c) 1 and 3 only

Explanation

FRBM Review Committee (N.K. Singh Committee) - 2017 Report

Statement	Claim	Verdict	Detail
1	FRBM Review recommended a debt-to-GDP ratio of 60% by 2023 (40% Centre, 20% States)	TRUE	The N.K. Singh Committee (2017) recommended a general government debt ceiling of 60% of GDP by FY 2022-23, with 40% for the Centre and 20% for the combined states.
2	Centre has domestic liabilities of 21% of GDP vs States' 49% of GDP	FALSE	The figures are reversed / exaggerated. As per the FRBM Review Report, the Centre's domestic liabilities were far larger (around 49% of GDP), while the States' combined liabilities were closer to 21% of GDP. The statement swaps them.
3	Constitution requires a State to take Centre's consent for a loan if it owes outstanding liabilities to the Centre	TRUE	Article 293(3) of the Constitution: A State cannot raise any loan without the Centre's consent if there is any part of a loan made by the Centre outstanding.

Answer: (c) 1 and 3 only.

Why each option is right or wrong

(a) Incorrect. Statement 3 is also correct - Article 293(3) is a genuine constitutional bar on State borrowing without Centre consent.
(b) Incorrect. Statement 2 is wrong (numbers are reversed) and Statement 1 is correct - so 2+3 only is wrong.
(c) CORRECT. Statements 1 and 3 are right - the 60/40/20 debt targets and Article 293(3) requirement.
(d) Incorrect. Statement 2 gives the domestic liability figures the wrong way round.

Key point

FRBM Review (N.K. Singh 2017): Debt-to-GDP target 60% by 2023 (40% Centre + 20% States). Fiscal deficit glide: 3% by FY21. Article 293(3): State needs Centre's nod for fresh loan if any prior Centre loan is outstanding.

Remember

The N.K. Singh FRBM Review Committee (2017) recommended a combined government debt ceiling of 60% of GDP by FY 2022-23, split as 40% for the Centre and 20% for the States. Article 293(3) of the Constitution independently requires any State that already owes money to the Centre to seek the Centre's consent before raising any fresh loan.

Common mistakes

Confusing Centre's fiscal-deficit target (3% of GDP) with the debt-to-GDP target (40% for Centre).
Reversing which tier of government has larger liabilities - Centre's stock is much larger than States' combined stock.
Missing Article 293(3) - the constitutional consent requirement that gives the Centre leverage over State borrowing.

Exam tip

FRBM numbers to remember: Debt-to-GDP by FY23: 60% overall (40 Centre + 20 States). Fiscal deficit: 3% Centre by FY21. Escape clause for shocks per Section 4(2).

Sources

FRBM Review Committee Report (Chairman: N.K. Singh), January 2017
Constitution of India - Article 293 (Borrowing by States)

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