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 2016Indian Economy · Public Finance
Q1. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit? 1. Reducing revenue expenditure 2. Introducing new welfare schemes 3. Rationalising subsidies 4. Reducing import duty Select the correct answer using the code given below.
Explanation
A budget deficit occurs when government expenses exceed revenue. It can be used as an indicator of the financial health of a country. It is a term more commonly used to refer to government spending and receipts rather than businesses or individuals. When a budget deficit occurs, it means that the current expenses surpass the income generated from regular operations. To correct its nation’s budget deficit, often referred to as a fiscal deficit, a government may cut back on certain expenditures or increase revenue-generating activities.
Statement 1 is correct: Reducing the revenue expenditure will certainly help in bridging the gap. Reducing revenue expenditure (such as government spending on salaries, interest payments, and subsidies) directly reduces the fiscal deficit. By controlling unproductive expenditure, the government can balance its budget more effectively.
Statement 2 is incorrect: Introducing new welfare schemes will most likely result in increasing expenditure and so will expanding industries which would require capital infusion. These steps will increase the budget deficit.
Statement 3 is correct: Rationalizing subsidies (for instance, by cutting unnecessary subsidies or targeting them better) can help reduce the fiscal deficit. Subsidies consume a significant portion of government revenue, and streamlining them would lead to savings.
Statement 4 is incorrect: Reducing import duties can reduce government revenue (as import duties are a source of income). This could increase the fiscal deficit if the loss in revenue isn’t compensated by other measures or increased economic activity.
UPSC 2016Indian Economy · Public Finance
Q2. Which of the following is/are included in the capital budget of the Government of India? 1. Expenditure on acquisition of assets like roads, buildings, machinery, etc. 2. Loans received from foreign governments 3. Loans and advances granted to the States and Union Territories Select the correct answer using the code given below.
Explanation
Capital Budget consists of capital receipts (like disinvestment, borrowing, loans from public or foreign governments, Reserve Bank of India, etc) and capital expenditure (like expenditure on development of machinery, health facilities, etc). Capital budgeting implies setting targets for projects/schemes to ensure maximum profitability.
Statement 1 is correct: Capital Expenditure includes the expenditure on the acquisition of land, building, machinery, equipment, creating assets such as roads and hospitals, repayment of government borrowings.
Statement 2 is correct: Capital receipts components are Loan borrowings, disinvestments, funds received from the issue of shares or debentures, etc.
Statement 3 is correct: Loans, and advances by the central government to state and union territory governments, etc. are also included in the capital budget of the Government of India.
Additional insight:
The capital budget is divided into two parts i.e. capital receipts and capital expenditure. Capital Receipts: Capital receipts refer to incoming cash flows. They can be both non-debt and debt receipts. Loans from the general public, foreign governments and RBI form a major part of capital receipts. Capital Expenditure: Capital expenditure is the expenditure on the development of machinery, equipment, building, health facilities, acquisition of assets like land, research & development, education, etc.
UPSC 2016Indian Economy · Public Finance
Q3. With reference to ‘Financial Stability and Development Council’, consider the following statements: 1. It is an organ of NITI Aayog. 2. It is headed by the Union Finance Minister. 3. It monitors macroprudential supervision of the economy. Which of the statements given above is/are correct?
Explanation
Statement 1 is incorrect: The Financial Stability and Development Council (FSDC) was set up by the government in December 2010. It serves as the top forum for financial matters. The FSDC was established well before the NITI Aayog came into existence.
Statement 2 is correct: The Chairman of the Financial Stability and Development Council (FSDC) is the Union Finance Minister.
Statement 3 is correct: The Council monitors macro-prudential supervision of the economy, which includes functioning of large financial conglomerates.
Additional insight:
The Chairman of the Financial Stability and Development Council (FSDC) is the Union Finance Minister and its members include:
The heads of financial sector Regulators (RBI, SEBI, PFRDA & IRDAI) Finance Secretary and/or Secretary, Department of Economic Affairs, Secretary, Department of Financial Services, Chief Economic Adviser. The Council can invite experts to its meeting if required. Functions of the FSDC:
To improve inter-regulatory coordination, institu-tionalise financial sector development, and strengthen the system for preserving financial stability. To monitor macro-prudential supervision of the economy. It assesses the functioning of the large financial conglomerates.
Exam tip:
S1 and S2 itself contradicts, an organ of NITI and headed by FM, hence either is clearly false, eliminating options A and D. The name ""Financial stability" make the probability of S2 being true more.
Answer key for these questions
Q
UPSC year
Correct answer
1
2016
(c) 1 and 3 only
2
2016
(d) 1, 2 and 3
3
2016
(c) 2 and 3 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.
