Public Finance: UPSC Previous Year Questions (Indian Economy)
26 previous year UPSC Prelims questions on public finance appear here, from 1997 to 2025. The 2025 paper used numerical questions on revenue deficit and fiscal deficit alongside the 15th Finance Commission. UPSC also asks about the capital budget, FRBM, tax-to-GDP ratio and the Finance Commission’s role. Each explanation gives the formula or provision.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
Showing 21–26 of 26 questions
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UPSC 2008Indian Economy · Public Finance
Q21. Consider the following statements with reference to Indira Gandhi National Old Age Pension Scheme (IGNOAPS): 1. All persons of 60 years or above belonging to the households below poverty line in rural areas are eligible. 2. The Central Assistance under this Scheme is at the rate of ‘ 300 per month per beneficiary. Under the Scheme, States have been urged to give matching amounts. Which of the statements given above is/are correct?
Explanation
The Indira Gandhi National Old Age Pension Scheme (IGNOAPS) is a part of the National Social Assistance Programme (NSAP) launched by the Government of India to support elderly individuals from below-poverty-line (BPL) house-holds.
Statement 1 is incorrect: The scheme is applicable to individuals aged 60 years or above who belong to BPL households. How-ever the eligibility is not restricted to rural areas alone as it encompasses both rural and urban BPL households.
Statement 2 is incorrect: The central assistance provided under IGNOAPS is 200(not 300) per month for beneficiaries aged between 60 to 79 years and 500 per month for those aged 80 years and above. States are encouraged to contribute an equivalent or higher amount to enhance the pension received by the beneficiaries.
UPSC 2006Indian Economy · Public Finance
Q22. Which one of the following statements is correct? Fiscal Responsibility and Budget Management Act (FRBMA) concerns:
Explanation
The Fiscal Responsibility and Budget Management Act (FRBMA), 2003, is a legislation enacted by the Government of India to institutionalize fiscal discipline, reduce fiscal deficits, and improve macroeconomic management. The Act specifically targets both fiscal deficit and revenue deficit:
Fiscal deficit is the difference between the government’s total expenditure and its total revenue (excluding borrowings). The FRBMA aims to reduce the fiscal deficit to a manageable level, typically around 3% of GDP, to ensure long-term fiscal sustainability. Revenue deficit is the difference between the government’s revenue expenditure and its revenue receipts. The FRBMA aims to eliminate the revenue deficit, as it indicates that the government is borrowing to meet its day-to-day expenses, which is not sustainable in the long run. Other provisions of FRBMA:
The Act mandates the government to lay before Parliament Medium-Term Fiscal Policy Statements, Fiscal Policy Strategy Statements, and Macroeconomic Framework Statements. It sets targets for reducing fiscal and revenue deficits over a specified period. It prohibits the government from borrowing from the Reserve Bank of India (RBI) after 2006, except under exceptional circumstances.
UPSC 2002Indian Economy · Public Finance
Q23. With reference to the Indian Public Finance, consider the following statements: 1. External liabilities reported in the Union Budget are based on historical exchange rates 2. The continued high borrowing has kept the real interest rates high in the economy 3. The upward trend in the ratio of Fiscal Deficit of GDP a recent years has an adverse effect on private investment 4. Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government Which of these statements are correct?
Explanation
As per the Economic Survey 2001-02, the fiscal deficit and interest payments remain key challenges in public finance management.
Statement 1 is correct: The Union Budget reports external debt at historical exchange rates, meaning the exchange rates prevailing at the time the debt was incurred. This method reflects the original cost of the debt in domestic currency terms.
Statement 2 is correct: Persistent high government borrowing can lead to an increase in real interest rates. This occurs because substantial borrowing may crowd out private investment, leading to higher demand for available funds and elevated interest rates.
Statement 3 is correct: An increasing Fiscal Deficit to GDP ratio indicates that the government is borrowing more relative to the size of the economy. This can crowd out private investment by reducing the funds available for private entities and potentially increasing interest rates, making borrowing more expensive for businesses.
Statement 4 is correct: Non-plan revenue expenditure includes obligatory expenses such as interest payments, pensions, and statutory transfers to states. Among these, interest payments have historically been the largest component.
UPSC 2001Indian Economy · Public Finance
Q24. Match List-I with List-II and select the correct answer using the codes given below the lists:
List-I (Term)
List-II (Explanation)
A. Fiscal deficit
1. Excess of Total Expenditure over Total Receipts
B. Budget deficit
2. Excess of Revenue Expenditure over revenue receipts
C. Revenue deficit
3. Excess of Total Expenditure over Total Receipts less borrowings
D. Primary deficit
4. Excess of Total Expenditure over Total Receipts less Payments borrowings and Interest
Explanation
A is correctly matched with 3: The fiscal deficit is the excess of total expenditure over total receipts, excluding borrowings. It measures the overall borrowing requirement of the government. B is correctly matched with 1: The budget deficit is the difference between total expenditure and total receipts, including borrowings. It is no longer used as a measure in India’s budgets. C is correctly matched with 4: The revenue deficit is the excess of revenue expenditure over revenue receipts, indicating a shortfall in current income. D is correctly matched with 2: The primary deficit is the fiscal deficit minus interest payments, reflecting the government’s borrowing requirement, excluding interest obligations.
UPSC 1999Indian Economy · Public Finance
Q25. Assertion (A): Fiscal deficit is greater than budgetary deficit. Reason (R): Fiscal deficit is the borrowing from the Reserve Bank of India plus other liabilities of the Government to meet its expenditure.
Explanation
Assertion (A) is true: The fiscal deficit is the difference between the government’s total expenditure and its total non-debt receipts (revenue receipts plus non-debt capital receipts). It represents the total borrowing requirement of the government. Budgetary Deficit can be termed as the excess of the total government expenditure over the total revenue generated in a financial year. The fiscal deficit is always greater than or equal to the budgetary deficit. This is because the fiscal deficit includes all borrowings, while the budgetary deficit only looks at the gap in the revenue account. The fiscal deficit includes borrowing to finance capital expenditure (investments in infrastructure, etc.), which is not part of the revenue account. Reason (R) is false: This is because the fiscal deficit is not solely borrowing from the Reserve Bank of India. It includes borrowing from the public, financial institutions, and external sources, as well as other liabilities like market loans and securities.
UPSC 1997Indian Economy · Public Finance
Q26. Which of the following are among the non-plan expenditures of the Government of India? 1. Defence expenditure 2. Subsidies 3. All expenditures linked with the previous plan periods 4. Interest payment Codes:
Explanation
Option (d) is correct:
Non-plan expenditure refers to all recurring and obligatory expenses of the government, which are not associated with specific planned development projects. It includes:
Defence expenditure: A significant part of non-plan expenditure allocated for maintaining the country’s security. Subsidies: Expenditures on subsidies like food, fertilizers, and petroleum products are non-plan in nature. Expenditures linked to previous plans: Commitments made during past plan periods, like spillovers of plan projects, also fall under non-plan expenditure. Interest payments: Payments on borrowings are a substantial component of non-plan expenditure and have consistently been the largest contributor.
Answer key for these questions
Q
UPSC year
Correct answer
21
2008
(d) Neither 1 nor 2
22
2006
(c) Both fiscal deficit and revenue deficit
23
2002
(d) 1, 2, 3 and 4
24
2001
(d) A-3; B-1; C-4; D-2
25
1999
(c) A is true but R is false
26
1997
(d) 1, 2, 3 and 4
What UPSC has tested in Public Finance
Revenue deficit equals revenue expenditure minus revenue receipts; fiscal deficit equals borrowings plus other liabilities, that is total expenditure minus total receipts excluding borrowings.
Capital receipts create a liability or cause a reduction in the assets of the Government.
The Finance Commission is a constitutional body that recommends the sharing of taxes between the Centre and the States.
A decrease in the tax-to-GDP ratio can reflect a slowing economy or more tax exemptions.
India levied a 6% equalisation tax on online advertisement services offered by non-residents.
Frequently asked questions
How many previous year UPSC questions are there on Public Finance?
This page covers 26 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 is the revenue deficit calculated?
It is revenue expenditure minus revenue receipts. With revenue expenditure of ₹80,000 crore and revenue receipts of ₹60,000 crore, the revenue deficit is ₹20,000 crore. It shows how much current spending is not covered by current income.
What is the fiscal deficit?
The excess of total expenditure over total receipts, excluding borrowings. It equals the amount the government must borrow in a year, which is why it is the main measure of the government’s borrowing requirement and of the pressure it puts on the economy.
What does the Finance Commission do?
It recommends how the net proceeds of taxes should be shared between the Union and the States and among the States, and the principles for grants-in-aid, under Article 280. The President lays its report before Parliament.
