Consider the following statements about the ‘Effective Revenue Deficit’: 1. ‘Effective Revenue Deficit’ is defined by the Fiscal Responsibility and Budget Management Act, 2003. 2. Targets have been set under the Fiscal Responsibility and Budget Management Act to bring it to zero percent of GDP. 3. Effective Revenue Deficit is below 1% of the GDP in the recent years. Which of the statements given above is/are incorrect?
Consider the following statements about the ‘Effective Revenue Deficit’:
1. ‘Effective Revenue Deficit’ is defined by the Fiscal Responsibility and Budget Management Act, 2003.
2. Targets have been set under the Fiscal Responsibility and Budget Management Act to bring it to zero percent of GDP.
3. Effective Revenue Deficit is below 1% of the GDP in the recent years.
Which of the statements given above is/are incorrect?
Options
- a.
3 only
- b.
1 and 2 only
- c.
2 and 3 only
- d.Correct answer
1, 2 and 3
Explanation
Effective Revenue Deficit is a new term introduced in the Union Budget 2011-12. While revenue deficit is the difference between revenue receipts and revenue expenditure, the present accounting system includes all grants from the Union Government to the state governments/Union territories/other bodies as revenue expenditure, even if they are used to create assets. Such assets created by the sub-national governments/bodies are owned by them and not by the Union Government. Nevertheless, they do result in the creation of durable assets.
However, on the recommendation of the N. K. Singh Committee, the Effective Revenue Deficit target for fiscal stability was removed from the Fiscal Responsibility and Budget Management Act.
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