Question 22 from UPSC CSE 2018 - Current Affairs

Question

Consider the following statements:
1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt-to-GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
3. As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter.
Which of the statements given above is/are correct?

IASCODEX · Accepted Answer

Correct Option: C. 1 and 3 only

Strategy: Careful attention to keywords like 'FRBM Review Committee', 'debt-to-GDP ratio', and 'mandatory consent for loan' is essential. Statement 1 aligns with the N.K. Singh Committee's recommendations of 60% combined debt—40% for Centre, 20% for States—by 2023. Statement 2 can be dismissed if one recalls the actual debt ratios: Centre's liabilities are much higher than 21% and States' far less than 49%. Statement 3's constitutional aspect about borrowing matches Article 293, which mandates Central consent if a State owes outstanding dues. Thus, statements 1 and 3 are correct.

Key Info: The Fiscal Responsibility and Budget Management (FRBM) Act, enacted in 2003, aimed to institutionalize fiscal discipline and reduce India's fiscal deficits. The FRBM Review Committee, headed by N.K. Singh (2016-17), recommended shifting to a debt-to-GDP target: 60% by 2023—40% for the Central Government and 20% for all States combined. The target reflected international norms for sustainable debt. India's actual central government debt has generally hovered above 40% of GDP, while state government liabilities have been around 20-25%, not 49% as mentioned in the incorrect statement 2.

Article 293 of the Constitution governs state borrowing powers. Article 293(1) permits states to borrow within India, while Article 293(3) stipulates that states must obtain the Centre's consent for any fresh borrowings if they have outstanding loans from the Government of India. This provision ensures macroeconomic stability by allowing central oversight of state indebtedness. The FRBM framework, statutory at both Union and state levels, seeks to enforce fiscal discipline by setting limits on deficits and debt and requiring transparency in fiscal operations.

IASCODEX · Answer

Option A: 1 only

IASCODEX · Answer

Option B: 2 and 3 only

IASCODEX · Answer

Option D: 1, 2, and 3