Public Finance: UPSC Previous Year Questions (Indian Economy)
3 previous year UPSC Prelims questions on Public Finance (Indian Economy). Choose an option to see the answer and explanation.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
Showing 1–3 of 3 questions
UPSC 2015Indian Economy · Public Finance
Q1. With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? 1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent. 2. It has made recommendations concerning sector-specific grants. Select the correct answer using the code given below.
Explanation
The Fourteen Finance Commission was constituted (FFC) by the President on January 2, 2013 under chairmanship of Dr. Y. V. Reddy to give recommendations on specified aspects of Centre-State fiscal relations during 2015-2020. The Commission submitted its report to the President on December 15, 2014.
Statement 1 is correct: The Fourteenth Finance Commission has radically enhanced the share of the states in the central divisible pool from the current 32% to 42% which is the biggest ever increase in vertical tax devolution.
Statement 2 is incorrect: Unlike the thirteenth Finance Com-mission, the Fourteenth Finance Commission did not make any recommendation concerning sector specific-grants.
Additional insight:
Recently, The Sixteenth Finance Commission of India was established under Article 280 of the Constitution to recommend the distribution of tax revenues between the Union and the States for the five-year period commencing April 1, 2026. Terms of Reference for the Sixteenth Finance Commission:
The 16th Finance Commission shall make recommendations as to the following matters, namely: i. The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under Chapter I, Part XII of the Constitution and the allocation between the States of the respective shares of such proceeds; ii. The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues under article 275 of the Constitution for the purposes other than those specified in the provisos to clause (1) of that article; and iii. The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.
UPSC 2015Indian Economy · Public Finance
Q2. With reference to the Union Government, consider the following statements: 1. The Department of Revenue is responsible for the preparation of the Union Budget that is presented to the Parliament. 2. No amount can be withdrawn from the Consolidated Fund of India without the authorization from the Parliament of India. 3. All the disbursements made from Public Account also need the authorization from the Parliament of India. Which of the statements given above is/are correct?
Explanation
Statement 1 is incorrect: The budget is prepared by the Department of Economic Affairs. The Budget Division under Department of Economic Affairs is responsible for the preparation and submission to Parliament of the Central Governments Budget other than Railways, as well as the supplementary Demands for Grants and Demands for Excess Grants. The Department of Revenue plays a key role in managing In-dia’s financial resources by overseeing tax collection and enforcing economic laws. It is responsible for collecting both direct taxes (such as income tax and wealth tax) and indirect taxes (like GST, customs duty, and excise duty). It does not prepare budget.
Statement 2 is correct: Consolidated Fund of India (Article 266) is a fund to which all receipts are credited and all payments are debited. No money out of this fund can be appropriated (issued or drawn) except in accordance with parliamentary law.
Statement 3 is incorrect: Provident fund deposits, savings bank deposits, remittances etc are credited to the Public Account. The Public Account is operated by the executive action i.e. payment from this account can be made without Parliamentary appropriation.
UPSC 2015Indian Economy · Public Finance
Q3. A decrease in tax to GDP ratio of a country indicates which of the following? 1. Slowing economic growth rate 2. Less equitable distribution of national income Select the correct answer using the codes given below.
Explanation
A tax-to-GDP ratio is a gauge of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).
Statement 1 is correct: A decrease in the tax-to-GDP ratio may indicate that the government is collecting less tax revenue relative to the size of the economy. This can happen due to slowing economic growth, which reduces corporate profits, incomes, and consumption, leading to lower tax collections. However, this is not always the case, as tax policy changes (like tax cuts) can also reduce the ratio without reflecting economic slowdown.
Statement 2 is incorrect: A decrease in the tax-to-GDP ratio does not necessarily indicate less equitable distribution of na-tional income. While lower tax revenue relative to the size of the economy could result from tax cuts, evasion, or shifts toward in-direct taxes, these factors do not directly determine income in-equality. The impact on equity depends on the structure of the tax system and government policies--if the decline stems from broad-based tax cuts benefiting all income groups, it may not affect income distribution significantly. However, if it results from reduced taxation on the wealthy or increased reliance on regressive indirect taxes, it could exacerbate inequality. Thus, a falling tax-to-GDP ratio alone is not a definitive indicator of less equitable income distribution.
Answer key for these questions
Q
UPSC year
Correct answer
1
2015
(a) 1 only
2
2015
(c) 2 only
3
2015
(a) 1 only
Frequently asked questions
How many previous year UPSC questions are there on Public Finance?
This page covers 3 previous year UPSC Prelims GS Paper-I questions on Public Finance (Indian Economy), asked from 1997 to 2025. Each has the correct answer and an explanation.
How should I use previous year UPSC questions for Prelims?
Attempt each question first, then open the answer and read the explanation for every option. Repeat by chapter, and track which statements UPSC reuses across years. Previous year questions show the exam pattern and difficulty level.
Which years are covered for Public Finance?
Questions on Public Finance (Indian Economy) are available for 15 years, from 1997 to 2025. Use the Year filter to practise a single paper.
