For the first time in 11 years, in 2015-16 the combined fiscal deficit of India’s 29 States as a proportion of the size of their economies breached the 3% threshold recommended as a fiscally prudent limit by successive Finance Commissions. The Reserve Bank of India has warned that the States’ expectation to revert to the 3% mark in their 2016-17 Budgets may not be realised, based on information from 25 States. While the Central government has projected a fiscal deficit of 3.2% of GDP for this year, States expect to bring theirs down further to 2.6% — still higher than the average of 2.5% clocked between 2011-12 and 2015-16. Whichever way one looks at it, the steady gains made in States’ finances over the past decade seem to be unravelling. Chief Economic Adviser Arvind Subramanian has asserted that the 3% of GDP benchmark for the fiscal deficit of the States or the Centre is not a magic number. Yet, it serves as an anchor for fiscal discipline in a country whose two biggest crises in recent decades — the balance of payments trouble in 1991, the currency tumble in 2013 — were precipitated by fiscal irresponsibility.
Taking on the massive debt of their chronically loss-making power distribution companies, as part of the UDAY restructuring exercise steered by the Centre, has surely dented the States’ fiscal health significantly over the past couple of years. With private investment remaining elusive, the States’ focus on bolstering capital expenditure in sectors such as transport, irrigation and power is welcome (States’ capital expenditure as a proportion of their GDP has been higher than the Centre’s since 2011-12). But it is important that such funding remains sustainable and States stay solvent. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 32%, starting 2015-16. The Centre has been short-changing States by relying on special levies such as surcharges, cesses and duties that are not considered part of the divisible tax pool. So, instead of a 10% rise in the States’ share of gross tax revenue, the actual hike in 2015-16 was just 7.7%. The forthcoming Goods and Services Tax regime should, it is to be hoped, correct this anomaly to an extent. But there are other potential stress points: Pay Commission hikes, rising interest payments, the unstated risks from guaranteeing proxy off-budget borrowings by State enterprises, and the boisterous clamour for ad hoc loan waivers. The N.K. Singh panel on fiscal consolidation has recommended a focus on overall government debt along with fiscal deficit and a 20% debt-to-GDP ratio for States by 2022-23. Not just the Centre, but States (with outstanding liabilities to GDP of around 24% as of March 2017) also need to tighten their belts considerably from here, even as they await the constitution of the Fifteenth Finance Commission.
Taking on the massive debt of their chronically loss-making power distribution companies, as part of the UDAY restructuring exercise steered by the Centre, has surely dented the States’ fiscal health significantly over the past couple of years. With private investment remaining elusive, the States’ focus on bolstering capital expenditure in sectors such as transport, irrigation and power is welcome (States’ capital expenditure as a proportion of their GDP has been higher than the Centre’s since 2011-12). But it is important that such funding remains sustainable and States stay solvent. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 32%, starting 2015-16. The Centre has been short-changing States by relying on special levies such as surcharges, cesses and duties that are not considered part of the divisible tax pool. So, instead of a 10% rise in the States’ share of gross tax revenue, the actual hike in 2015-16 was just 7.7%. The forthcoming Goods and Services Tax regime should, it is to be hoped, correct this anomaly to an extent. But there are other potential stress points: Pay Commission hikes, rising interest payments, the unstated risks from guaranteeing proxy off-budget borrowings by State enterprises, and the boisterous clamour for ad hoc loan waivers. The N.K. Singh panel on fiscal consolidation has recommended a focus on overall government debt along with fiscal deficit and a 20% debt-to-GDP ratio for States by 2022-23. Not just the Centre, but States (with outstanding liabilities to GDP of around 24% as of March 2017) also need to tighten their belts considerably from here, even as they await the constitution of the Fifteenth Finance Commission.
1. How much fiscal deficit has been projected by the central government in this year?
B. 32%
C. 3.7%
D. 3%
E. 3.2%
C. 3.7%
D. 3%
E. 3.2%
2. The States’ focus on bolstering capital expenditure in which of the following sector(s)?
i. Power ii. Economics iii. Transport
A. Only i
B. Only iii
C. Only i and ii
D. Only i, ii and iii
E. Only i and iii
C. Only i and ii
D. Only i, ii and iii
E. Only i and iii
3. Which of the following two biggest crises happened in recent decades?
i. Problem in transportation
ii. interdisciplinary culture
iii. the currency tumble in 2013
iv. the balance of payments trouble in 1991
v. macroeconomics
iii. the currency tumble in 2013
iv. the balance of payments trouble in 1991
v. macroeconomics
A. only iii
B. only ii and iii
C. only iii and iv
D. only v
E. only ii and v
4. Which of the following is true according to the passage?
A. Tepid economic growth has helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 32%, starting 2015-16
B. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 47% from 32%, starting 2015-16
C. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 32%, starting 2015-16
D. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 33%, starting 2015-16
E. None of these.
C. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 32%, starting 2015-16
D. Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 33%, starting 2015-16
E. None of these.
5. Choose the word which is MOST SIMILAR in meaning of the word printed in bold as used in the passage.
Unraveling
A. Resolve
B. Confuse
C. Twist
D. Fuddle
E. Throw
C. Twist
D. Fuddle
E. Throw
6. Choose the word which is MOST SIMILAR in meaning of the word printed in bold as used in the passage.
A. Order
B. Collapse
C. Rise
D. Surface
E. Ascend
B. Collapse
C. Rise
D. Surface
E. Ascend
7. Choose the word which is MOST OPPOSITE in meaning of the word printed in bold as used in the passage.
A. Disturbance
B. Make noise
C. Dissonance
D. Calm
E. Demand
B. Make noise
C. Dissonance
D. Calm
E. Demand
8. Choose the word which is MOST OPPOSITE in meaning of the word printed in bold as used in the passage.
Bolstering
A. Hinder
B. Support
C. Fortify
D. Tone up
E. N.O.T.
B. Support
C. Fortify
D. Tone up
E. N.O.T.
Solution
1. Ans. E.
Solution: (While the Central government has projected a fiscal deficit of 3.2% of GDP for this year)
2. Ans. E.
Solution: (States’ focus on bolstering capital expenditure in sectors such as transport, irrigation and power)
3. Ans. C.
Solution:
(whose two biggest crises in recent decades — the balance of payments trouble in 1991, the currency tumble in 2013)
4. Ans. C.
Solution: (Tepid economic growth hasn’t helped, and States have had to resort to higher market borrowings even after the Centre hiked their share from tax inflows to 42% from 32%, starting 2015-16.)
5. Ans. A.
Solution: (Resolve: सुलझाना: unravel)
6. Ans. B.
Solution: (Collapse: गिरना :tumble)
7. Ans. D.
Solution: (Clamour: शोर मचाना
calm: शान्त रहना)
8. Ans. A.
Solution: (Hinder: बाधा डालना
Bolstering: सहारा देना)
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