[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 15 March 2022 – Economy – INSIGHTSIAS

Solution: c)

How does a relaxation of the FRBM work?

The law does contain what is commonly referred to as an ‘escape clause’. Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.

Solution: a)

Capital formation means creation of physical assets and non- physical capital consisting of public health efficiency, visible and no visible capital.

Gross domestic capital formation is the addition to the capital stock within the domestic territory of a country during a year.

Gross domestic capital formation includes all expenses made by household, business people and Govt, adding new durable goods to the fixed capital stock of a country.

These assets are in the form of infrastructure such as buildings, roads canals, bridges, means of transport, machinery and other equipments.

Solution: a)

Government receipts which either (i) create liabilities (e.g. borrowing) or (ii) reduce assets (e.g. disinvestment) are called capital receipts. Thus when govt. raises funds either by incurring a liability or by disposing off its assets, it is called a capital receipt.

Two examples of Capital Receipts which create liability are Borrowing and raising of funds from Public Provident Fund and Small savings deposits.

Two examples of Capital Receipts which reduce assets are Disinvestment and Recovery of Loans. Disinvestment by government means selling a part or whole of its shares of public sector undertakings. Funds raised from disinvestment reduce government assets

Solution: a)

Revenue receipts can be defined as those receipts which neither create any liability nor cause any reduction in the assets of the government. They are regular and recurring in nature and the government receives them in the normal course of activities.

Revenue receipts include the proceeds from taxes and other duties levied by the Centre; the interest and dividend it receives on its investments; and the fees and charges the government receives for its services.

Simply put, revenue receipts must satisfy two basic conditions:

• No liability: Revenue receipts do not create any liability for the government. For example, taxes received by the government, unlike borrowings, do not create any liabilities for it.
• No asset reduction: Revenue receipts do not lead to any reduction in the government’s assets. So, the government cannot show its earnings from sale of stake in a public-sector undertaking as revenue receipts because the stake sale resulted in reduction of its assets.

For the government, there are two sources of revenue receipts — tax revenues and non-tax revenues

Solution: d)

Tax revenue is charged on income earned by an individual or an entity (direct tax) and on the value of transaction of goods and services (indirect tax). On the other hand, non-tax revenue is charged against services provided by the government. It also includes interest charged on loans advanced by the government for various purposes.