UPSC CSE Prelims
Government Budget Previous Year Questions (PYQs)

Detailed Explanation:

Answer: Option 3 — 1 and 3 only

✅ Statement 1 – Correct: Reducing revenue expenditure (salaries, interest payments, administrative costs) directly lowers total government spending without affecting asset creation, thereby reducing the budget deficit.

❌ Statement 2 – Incorrect: Introducing new welfare schemes increases government expenditure, which widens the budget deficit rather than reducing it.

✅ Statement 3 – Correct: Rationalizing subsidies through better targeting (DBT, eliminating leakages) reduces wasteful expenditure while maintaining benefits for intended beneficiaries, thus helping to narrow the deficit.

❌ Statement 4 – Incorrect: Reducing import duty decreases tax revenue for the government, which increases the deficit when expenditure remains constant.

Detailed Explanation:

Answer: Option 4 — 1, 2 and 3

The Capital Budget of the Government of India includes all transactions that either create assets or liabilities. It comprises both Capital Receipts (loans received, recovery of loans, etc.) and Capital Expenditure (acquisition of assets, loans granted, etc.).

✅ Statement 1 – Correct: Expenditure on acquisition of assets like roads, buildings, and machinery is Capital Expenditure as it creates physical assets for the country and is long-term in nature, hence included in the capital budget.

✅ Statement 2 – Correct: Loans received from foreign governments constitute Capital Receipts as they create a liability (repayment obligation) for the government, forming part of the capital budget.

✅ Statement 3 – Correct: Loans and advances granted to States and Union Territories are Capital Expenditure since they create financial assets for the central government (recoverable with interest), thus included in the capital budget.

Detailed Explanation:

All four items listed were covered under Non-Plan Expenditure before the classification was abolished in 2017-18.

Non-Plan Expenditure included: Defence expenditure (capital), Interest payments (revenue), Salaries and pensions (revenue), and Subsidies (revenue). These were committed/obligatory expenditures not routed through Planning Commission.