QUIZ – 2020: INSIGHTS STATIC , 29 July 2021 – Economy – INSIGHTSIAS

Solution: a)

‘Escape clause’ generally refers to a contract provision that specifies the conditions under which a party can be freed from an obligation. The escape clause under the FRBM (Fiscal Responsibility and Budget Management) Act details a set of events in which the Central government can deviate from fiscal deficit targets. 

Escape clauses provide flexibility to governments to overshoot fiscal deficit targets in times of need, enabling them to respond to economic shocks. To ensure escape clauses are not misused, they are generally allowed only in exceptional circumstances, and with a check on the quantum of deviation.

The FRBM amendments also mentioned that the deviation from the stipulated fiscal deficit target must not exceed 0.5 percentage points in a year.

Source

Solution: d)

In 2018, the FRBM Act was amended to specify three conditions upon which the escape clause can be invoked.

• First, over-riding considerations of national security, acts of war, and calamities of national proportion and collapse of agriculture severely affecting farm output and incomes.
• Second, far-reaching structural reforms in the economy with unanticipated fiscal implications.
• Three, a sharp decline in real output growth of at least 3 percentage points below the average for the previous four quarters.

Source

Solution: b)

Typically shell companies include multiple layers of companies that have been created for the purpose of diverting money or for money laundering. Most shell companies do not manufacture any product or deal in any product or render any service. They are mostly used to make financial transactions. Generally, these

companies hold assets only on paper and not in reality. These companies conduct almost no economic activity.

Solution: c)

Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock.

FISCAL CONSOLIDATION is a process where government’s FISCAL health is getting improved and is indicated by reduced FISCAL deficit. Improved tax revenue realization and better aligned expenditure are the components of FISCAL CONSOLIDATION as the FISCAL deficit reaches at a manageable level.

Solution: b)

The Supreme court held that lottery, betting and gambling were “actionable claims” and came within the definition of ‘goods’ under Section 2(52) of the Central Goods and Services Tax Act, 2017.

The Court said the levy of GST on lotteries did not amount to “hostile discrimination”.

At the State level, the following taxes are being subsumed:

1. Subsuming of State Value Added Tax/Sales Tax,
2. Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States),
3. Octroi and Entry tax,
4. Purchase Tax,
5. Luxury tax, and
6. Taxes on lottery, betting and gambling.