UPSC Prelims 2018 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?

Explanation:

• The Fiscal Responsibility and Budget Management (FRBM) Review Committee headed by Mr. N.K. Singh submitted its report in January 2017. It has preferred a debt to GDP ratio of 60% for the general government by 2023, comprising 40% for the Central government and 20% for the State governments. So, statement 1 is correct.
  
  
•  The Central Government has larger domestic liabilities of 46.1% of GDP (2016-17) and as a percent of GDP, States’ liabilities increased to 23.2 percent at end-March 2016. So, statement 2 is not correct.
  
  
•  Article 293(1) of the Constitution of India empowers State Governments to borrow only from domestic sources. According to Article 293 (3), as long as a State has outstanding borrowings from the Central Government, it is required to obtain Central Government's prior approval before incurring debt. So, statement 3 is correct.
  
  

Therefore, option (3) is the correct answer.

Subject: Economics | Public Finance