QUIZ – 2020: INSIGHTS STATIC , 22 July 2021 – Economy – INSIGHTSIAS

Solution: a)

• If the fiscal deficit ratio is too high, it implies that there is a lesser amount of money left in the market for private entrepreneurs and businesses to borrow.
• Lesser amount of this money, in turn, leads to higher rates of interest charged on such lending.
• A high fiscal deficit and higher interest rates would also mean that the efforts of the Reserve Bank of India to reduce interest rates are undone.

The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, intends to bring transparency and accountability in the conduct of the fiscal and monetary actions of the government.

The rules set targets for the phased reduction of the fiscal deficit to acceptable levels. It requires the government to limit the fiscal deficit to 3% of the GDP by 31 March 2021 and the debt of the central government to 40% of the GDP by 2024-25, among others.

Solution: d)

The government is required to provide the Parliament details of fiscal indicators such as fiscal, revenue and primary deficit as a percentage of GDP, tax and non-tax revenues as a percentage of GDP, and central government debt as a percentage of GDP.

Solution: c)

What is government borrowing?

Borrowing is a loan taken by the government and falls under capital receipts in the Budget document.

Usually, Government borrows through issue of government securities called G-secs and Treasury Bills.

Bulk of government’s fiscal deficit comes from its interest obligation on past debt.

Solution: d)

Nidhi is a company formed with the exclusive object of cultivating the habit of thrift, savings and functioning for the mutual benefit of members by receiving deposits only from individuals enrolled as members and by lending only to individuals, also enrolled as members.

• Nidhis are governed by the overall ceiling on the rate of interest prescribed by RBI under NBFC Directions.
• Nidhis are companies registered under the Companies Act, 2013 and is regulated by Ministry of Corporate Affairs (MCA).
• Nidhis are also included in the definition of Non- Banking Financial companies or (NBFCs) which operate mainly in the unorganized money market.

Solution: a)

• Currency is not considered as fixed capital, it is liquid capital. Fixed capital are the assets used in the productive process.
• Examples include Building or expanding existing factory, Purchase of transport equipment and all other machineries used in the productive process.
• Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more.