Budget, taxation & public finance

Answer: (c) 1 and 3 only

A deficit is the gap between what the government spends and what it earns, so it narrows only if spending falls or receipts rise. Cutting revenue expenditure and rationalising subsidies lower spending; new welfare schemes add spending and a lower import duty cuts tax receipts, so both widen the gap.

• ✓ 1. Revenue expenditure (salaries, interest, subsidies, day-to-day running costs) is spending; reducing it directly lowers the revenue and fiscal deficits.
• ✗ 2. A new welfare scheme is fresh expenditure. Unless matched by new revenue, it enlarges the deficit.
• ✓ 3. Subsidies on food, fertiliser and fuel are a large part of revenue expenditure; targeting them better cuts spending without cutting welfare.
• ✗ 4. Import duty is a tax receipt of the Union. Lowering it reduces revenue and therefore increases the deficit.

Remember · Deficit falls only by raising receipts or cutting expenditure. Anything that adds spending or gives up tax revenue widens it.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (d) 1, 2 and 3

The capital budget has two sides: capital receipts (borrowings, including loans from foreign governments, and recoveries of loans) and capital payments (spending on assets, investments, and loans given to States, UTs and others). Item 2 is a capital receipt, while items 1 and 3 are capital payments, so all three belong to the capital budget.

• ✓ 1. Spending that creates assets such as land, buildings and machinery is capital expenditure, a part of capital payments.
• ✓ 2. Loans received from foreign governments create a liability for the government, so they are capital receipts.
• ✓ 3. Loans and advances given by the Centre to State and UT governments create a financial asset (a claim on repayment), so they are capital payments.

Remember · Capital budget = capital receipts (loans taken, recoveries, disinvestment) + capital payments (asset creation, investments, loans given). Test: does it create a liability or change assets?

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 5 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) curbing of the tax evasion by multinational companies

Base Erosion and Profit Shifting (BEPS) means tax-planning strategies by which multinational companies use gaps in tax rules to move profits artificially to low-tax or no-tax places. The OECD/G20 BEPS Project is the global effort to curb this, so 'curbing tax evasion by multinational companies' is the closest option.

• ✓ (b) BEPS is about multinationals shifting profits to low or no-tax locations to avoid paying tax. The OECD calls it tax avoidance; of the four options, this is the only one about tax.
• ✗ (c) Exploitation of a country's genetic resources by companies is the issue of biopiracy and access-and-benefit-sharing, not profit shifting.
• ✗ (d) Ignoring environmental costs in development projects is a matter for environmental impact assessment, not for tax rules.

Remember · BEPS = multinationals shifting profits to low-tax places to cut tax; countered by the OECD/G20 BEPS Project (15 actions) so that profits are taxed where value is created.

Question and answer: UPSC's official GS Paper I (2016, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error