General Instructions

• All questions are compulsory.
• Use examples wherever required.
• Answer in clear and concise language.
• Diagrams and illustrations are encouraged for explanations.

Part A: Very Short Answer Questions (1 mark each)

1. Define Government Budget.
A Government Budget is a statement of estimated receipts and expenditure of the government for a particular financial year, showing plans for fiscal management.
2. What are Revenue Receipts? Give two examples.
Revenue Receipts are regular receipts that do not create liabilities, such as taxes (Income Tax, GST) and fees (passport fees, fines).
3. What is a Surplus Budget?
A Surplus Budget occurs when government receipts exceed government expenditure.
4. Name the act related to fiscal responsibility and budget management in India.
Fiscal Responsibility and Budget Management Act, 2003 (FRBMA).
5. What does GST stand for? Explain briefly.
GST stands for Goods and Services Tax, a single indirect tax levied on the supply of goods and services across India, replacing multiple central and state taxes.
6. Define Capital Receipts with one example.
Capital Receipts are receipts that either create liabilities or reduce assets of the government, e.g., borrowings from the public or disinvestment proceeds.
7. What is a Deficit Budget?
A Deficit Budget occurs when government expenditure exceeds government receipts.

Part B: Short Answer Questions (3 marks each)

1. List and explain any three objectives of a government budget.
• Resource Mobilization: To raise funds for development projects and infrastructure.
• Economic Stability: To control inflation, deflation, and stabilize prices through fiscal measures.
• Income Redistribution: To reduce inequality using progressive taxation and social expenditure.
• Employment Generation: Promotes public investment in projects creating jobs.
2. Explain the classification of government receipts.
Government receipts are classified as:
1. Revenue Receipts: Non-debt receipts not creating liabilities (taxes, fees, fines).
2. Capital Receipts: Receipts creating liabilities or reducing assets (government borrowings, loans received, disinvestment).
Example: Income Tax is revenue receipt; borrowings from RBI are capital receipts.
3. Define Fiscal Policy and explain its role.
Fiscal Policy refers to the use of government expenditure and taxation to influence the economy. It aims to:
– Control inflation/deflation
– Promote economic growth
– Achieve full employment
The government budget is the main tool of fiscal policy.
4. Differentiate between Balanced, Surplus, and Deficit Budgets with examples.
• Balanced Budget: Expenditure = Receipts. Example: Receipts ₹1,00,000, Expenditure ₹1,00,000.
• Surplus Budget: Receipts > Expenditure. Example: Receipts ₹1,50,000, Expenditure ₹1,30,000.
• Deficit Budget: Expenditure > Receipts. Example: Expenditure ₹2,00,000, Receipts ₹1,60,000.
5. Explain the significance of GST in India’s economy.
GST unifies multiple indirect taxes, reduces tax cascading, simplifies compliance, promotes interstate trade, and increases transparency in tax administration. It helps build a single national market.
6. Briefly explain Government Debt and its types.
Government debt refers to the total borrowings by the government to meet budgetary deficits. Types:
1. Internal Debt – borrowings within the country (bonds, loans from RBI).
2. External Debt – borrowings from foreign governments or institutions.
3. Ways and means advances – short-term borrowings from RBI.

Part C: Long Answer Questions (5 marks each)

1. Explain the classification of government expenditure with examples.
• Revenue Expenditure: Recurring expenditure to maintain government functioning without creating assets. Examples: salaries, subsidies, pensions.
• Capital Expenditure: Expenditure creating assets or reducing liabilities. Examples: investment in infrastructure, repayment of loans, purchase of machinery.
• Classification helps in planning for sustainable economic growth and fiscal management.
2. Discuss the measures of government deficit with examples.
• Revenue Deficit: Revenue expenditure > revenue receipts. Example: Receipts ₹1,00,000, Expenditure ₹1,20,000 → Revenue deficit ₹20,000.
• Fiscal Deficit: Total expenditure – total receipts excluding borrowings. Example: Total expenditure ₹2,50,000, total receipts ₹2,00,000 → Fiscal deficit ₹50,000.
• Primary Deficit: Fiscal deficit – interest payments. Example: Fiscal deficit ₹50,000, interest ₹10,000 → Primary deficit ₹40,000.
3. Explain the impact of changes in government expenditure and taxes on the economy.
– Increase in expenditure: Raises aggregate demand → income & employment rise.
– Reduction in taxes: Increases disposable income → higher consumption → stimulates growth.
– Decrease in expenditure or increase in taxes: Reduces aggregate demand → may slow economic activity.
Example: Increasing public investment in roads creates jobs and stimulates business demand for materials.
4. Write a short note on Fiscal Responsibility and Budget Management Act, 2003.
FRBMA was enacted to ensure fiscal discipline by:
– Limiting revenue deficit
– Reducing fiscal deficit
– Increasing transparency in budget
It provides a legal framework for responsible fiscal management in India.
5. Explain the concept of Balanced, Surplus, and Deficit Budget using a diagram.
• Balanced Budget: Expenditure = Receipts.
• Surplus Budget: Receipts > Expenditure.
• Deficit Budget: Expenditure > Receipts.
• Diagram: (Conceptual)
  Receipts → Expenditure
  Balanced: Equal flow
  Surplus: More inflow
  Deficit: More outflow

Part D: Case-Based Question (6 marks)

Case: The government decides to increase infrastructure spending by ₹50,000 crore and simultaneously reduces corporate taxes. Analyze the possible effects on the economy.

Part E: Assertion-Reason Questions (1 mark each)

1. Assertion (A): A fiscal deficit always increases government borrowings.
   Reason (R): Fiscal deficit occurs when government expenditure exceeds total receipts excluding borrowings.
Answer: Both A and R are true, and R is the correct explanation of A.
2. Assertion (A): GST reduces tax cascading in India.
   Reason (R): GST is a single tax replacing multiple indirect taxes across the country.
Answer: Both A and R are true, and R is the correct explanation of A.
3. Assertion (A): Capital receipts do not create any liability.
   Reason (R): Borrowings from RBI are capital receipts.
Answer: A is false, R is true. Capital receipts may create liability.

Part F: Numerical/Application-Based Question (4 marks)

The government’s revenue receipts are ₹2,50,000 crore, revenue expenditure is ₹3,00,000 crore, total expenditure is ₹4,00,000 crore, borrowings are ₹1,00,000 crore, and interest payments are ₹50,000 crore. Calculate: