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What was the primary aim of the Fiscal Responsibility and Budget Management Act?
What was the primary aim of the Fiscal Responsibility and Budget Management Act?
Which committee recommended the 3E's to reduce the fiscal deficit of the government?
Which committee recommended the 3E's to reduce the fiscal deficit of the government?
What significant event caused the government to increase public expenditure after 2008?
What significant event caused the government to increase public expenditure after 2008?
What was one of the reasons for not achieving the fiscal deficit targets set by the FRBM Act?
What was one of the reasons for not achieving the fiscal deficit targets set by the FRBM Act?
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In which year was the first amendment made to postpone the FRBM Act targets?
In which year was the first amendment made to postpone the FRBM Act targets?
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What was the targeted reduction of general government debt as per the FRBM Act by fiscal year 2024-25?
What was the targeted reduction of general government debt as per the FRBM Act by fiscal year 2024-25?
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What measure was suggested by the Bimal Jalan Committee regarding government vehicle purchases?
What measure was suggested by the Bimal Jalan Committee regarding government vehicle purchases?
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What impact did the Mahatma Gandhi National Rural Employment Guarantee Act have on fiscal policy?
What impact did the Mahatma Gandhi National Rural Employment Guarantee Act have on fiscal policy?
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What is the primary role of the Finance Commission as stated in the Constitution of India?
What is the primary role of the Finance Commission as stated in the Constitution of India?
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How often is the Finance Commission constituted?
How often is the Finance Commission constituted?
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Which of the following is NOT a function of the Finance Commission?
Which of the following is NOT a function of the Finance Commission?
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What was the recommended share of states in the net proceeds of Union tax revenue by the 15th Finance Commission?
What was the recommended share of states in the net proceeds of Union tax revenue by the 15th Finance Commission?
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What is vertical devolution as per the Finance Commission's recommendations?
What is vertical devolution as per the Finance Commission's recommendations?
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What percentage of total costs did the Government of India incur for planned expenditures up to 2016-2017?
What percentage of total costs did the Government of India incur for planned expenditures up to 2016-2017?
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What type of expenditure is associated with routine operational expenses of the government?
What type of expenditure is associated with routine operational expenses of the government?
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Which Finance Commission's recommendations resulted in a reduction of the state's share in the net proceeds of Union tax revenue?
Which Finance Commission's recommendations resulted in a reduction of the state's share in the net proceeds of Union tax revenue?
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What type of schemes are fully funded by the Union government and implemented by the Union government machinery?
What type of schemes are fully funded by the Union government and implemented by the Union government machinery?
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What was the primary purpose of the FRBM Act introduced in 2003?
What was the primary purpose of the FRBM Act introduced in 2003?
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In the distribution of finances to the state governments, what percentage of funding might a Centrally Sponsored Scheme have coming from state governments?
In the distribution of finances to the state governments, what percentage of funding might a Centrally Sponsored Scheme have coming from state governments?
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What are the two types of debt the Government of India primarily incurs?
What are the two types of debt the Government of India primarily incurs?
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What powers does the Finance Commission have in relation to its functions?
What powers does the Finance Commission have in relation to its functions?
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What change in the expenditure classification did the Government of India implement starting in 2017-2018?
What change in the expenditure classification did the Government of India implement starting in 2017-2018?
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What is one of the additional functions of the Finance Commission mentioned?
What is one of the additional functions of the Finance Commission mentioned?
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Which of the following is NOT categorized as Non-Planned Expenditure?
Which of the following is NOT categorized as Non-Planned Expenditure?
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What is the primary responsibility of NITI Aayog established in 2015?
What is the primary responsibility of NITI Aayog established in 2015?
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Which major expenditure item includes subsidies for food and fertilizers?
Which major expenditure item includes subsidies for food and fertilizers?
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Why does the government take loans for revenue expenditure rather than capital creation?
Why does the government take loans for revenue expenditure rather than capital creation?
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What does fiscal consolidation primarily involve?
What does fiscal consolidation primarily involve?
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Which of the following is a significant consequence of the government taking loans for consumption?
Which of the following is a significant consequence of the government taking loans for consumption?
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How many five-year plans has the Planning Commission prepared so far?
How many five-year plans has the Planning Commission prepared so far?
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What is the focus of planned expenditure by the Government of India?
What is the focus of planned expenditure by the Government of India?
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Which body is responsible for formulating the five-year plans in India?
Which body is responsible for formulating the five-year plans in India?
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What was the target fiscal deficit percentage set by the FRBM Act for the government?
What was the target fiscal deficit percentage set by the FRBM Act for the government?
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Study Notes
Government of India's Expenditure
- Before 2016-2017, the government of India categorized spending as either "Planned" or "Non-Planned"
- Planned expenditure referred to projects outlined in the country's five-year plan, such as building hospitals and roads, and accounted for 25-30% of total spending
- Non-Planned expenditures included routine operational costs and new projects outside the five-year plan, making up 70-75% of total spending
- Major expenditure categories for the GOI include interest payments, subsidies (food and fertilizers), and defense
Planning Commission and NITI Aayog
- The Planning Commission was tasked with formulating five-year plans for India
- The Commission prepared 12 five-year plans, with the last one lasting from 2012-2017
- In 2015, the Planning Commission was replaced by NITI (National Institution for Transformation of India) Aayog
- NITI Aayog is responsible for long-term planning, preparing a 15-year vision document. The "India at 75" document is an example of this.
Public Debt
- Public debt refers to the borrowings of the Central Government.
- General Government debt refers to the combined debt of the Central and State Governments.
- Public debt can be split into internal debt (borrowed within the country) and external debt (borrowed from non-Indian sources)
- The Government of India leans towards borrowing more from internal sources.
- The majority of government borrowings are for day-to-day expenditures.
Fiscal Responsibility and Budget Management (FRBM) Act
- Introduced in 2003 with the goal of improving efficiency in government spending
- The FRBM Act aimed to reduce revenue deficits to 0% by 2008-2009 and fiscal deficits to under 3%
- Fiscal consolidation refers to policies that aim to reduce government deficits and public debts
- From 2017-2018, the GOI shifted to classifying expenditures as revenue expenditure and capital expenditure.
- The act aims to improve India's financial discipline and ensure sustainable economic growth, setting rules for fiscal deficits and public debt management
- The act requires transparent financial statements and accountable spending practices
- Targets were pushed back multiple times from 2012 to 2015, 2015 to 2018, and finally to 2025-2026
- The Bimal Jalan Committee recommended a focus on "Economy, Efficiency, and Effectiveness" to reduce fiscal deficits
- The FRBM Act aimed to lower general government debt to 60% of GDP by 2024-25
Reasons for FRBM Act Target Delays
- The sixth pay commission in 2006 increased salaries for government employees by 100%, costing an extra 1 lakh crores.
- The implementation of the Mahatma Gandhi National Rural Employment Guarantee Act in 2006 led to higher unemployment rates, increasing public expenditure.
- The global financial crisis in 2008, causing a decline in foreign investment, prompted the government to increase public investment to revive the economy.
Finance Commission
- Established by the President under Article 280 of the Constitution
- The Finance Commission's main function is to recommend the distribution of tax revenue between the Union and the States, as well as among the States themselves
- The Commission is formed every five years
- The Commission determines its procedure and has the powers that Parliament grants to it
Functions of the Finance Commission (Terms of Reference)
- Recommending the distribution of tax revenue between the Centre and the States
- Providing grants-in-aid to State governments under Article 275 of the Constitution
- Supplementing state government revenue for the functioning of Panchayats and Municipalities
- Addressing other financial matters
Distribution of Revenue
- The Finance Commission recommends the distribution of net proceeds of taxes between the Union and States (vertical devolution) and the division of shares among the States (horizontal devolution)
- The 15th Finance Commission recommended allocating 41% of Union tax revenue to the states (1% less than the 14th Commission due to two new Union Territories)
- Mechanisms are followed for horizontal devolution.
Social Welfare Schemes
- Two types of central government social welfare schemes:
- Central Sector Schemes: 100% funded by the Union government and implemented by the Union government machinery
- Centrally Sponsored Schemes: Funded by a certain percentage from state governments (90:10 or 75:25) and implemented by the state governments. The central government provides grants-in-aid.
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Description
This quiz explores the government's expenditure classification in India prior to 2016-2017, focusing on planned and non-planned spending. It also covers the transition from the Planning Commission to NITI Aayog and their roles in formulating development plans. Test your knowledge on India's financial planning and expenditure categories.