Indian Economy and Public Finance
Indian Economy and Public Finance tests basic macro concepts, government budgeting, taxation and deficit arithmetic, with a focus on definitions and classification.
Core rules
- GDP is output within domestic territory; GNP adds net factor income from abroad. Real values remove price changes; nominal values do not.
- Inflation is measured by CPI or WPI. RBI's monetary tools include repo rate, reverse repo, CRR, SLR and open market operations.
- Budget receipts are revenue receipts (tax and non-tax) and capital receipts (borrowings, disinvestment, recoveries of loans). Revenue expenditure does not create assets; capital expenditure does.
- Revenue deficit = revenue expenditure - revenue receipts. Fiscal deficit = total expenditure - total receipts excluding borrowings. Primary deficit = fiscal deficit - interest payments.
- GST is a destination-based indirect tax; the GST Council is constituted under Article 279A. The Finance Commission is under Article 280. FRBM targets fiscal discipline.
Worked example
Total expenditure is ₹500 crore, revenue receipts ₹300 crore and non-debt capital receipts ₹50 crore. Fiscal deficit = 500 - (300 + 50) = ₹150 crore, which equals borrowings. If revenue expenditure is ₹380 crore, revenue deficit = 380 - 300 = ₹80 crore. If interest payments are ₹40 crore, primary deficit = 150 - 40 = ₹110 crore.
Traps
Disinvestment is a capital receipt, not revenue. Fiscal deficit is not the same as revenue deficit. Borrowings finance the fiscal deficit but are not counted in receipts for that calculation. Do not label direct taxes such as income tax as indirect.