GS Paper 3
Syllabus: Indian Economy
Source: Indian Express
Context: As per the latest data by CAG (titled ‘Union and State Finances at A Glance’ for 2019-20), expenditure on the pension has emerged as one of the major components of the Committed Expenditure of the Centre and states in recent years.
- Committed expenditure on revenue account mainly consisted of interest payments, expenditure on salaries, pensions and subsidies.
- If the Committed Expenditure is higher, it means that the government has lesser flexibility to determine the purpose for which revenue expenditure is to be incurred.
What does the report say:
- Expenditure on the ‘salary and wages’ of the Centre and three states – including Gujarat, Karnataka and West Bengal – during 2019-20.
- The Centre’s total Committed Expenditure accounted for 37 per cent of its total revenue expenditure of Rs 26.15 lakh crore in 2019-20
- 67 per cent on Interest Payment and Servicing of Debt
- 19 per cent on expenditure on Pensions and Salary
- 14 per cent Wages
- Centre’s pension bill was 132 per cent of its expenditure on salary and wages in 2019-20
FRBM Act (2003)
- Aim: To make the Central government responsible for ensuring inter-generational equityin fiscal management and long-term macroeconomic stability.
- Fiscal Limits: The Act envisages the setting of limits on the Central and state government’s debt and deficits.
- The States have since enacted their own respective Financial Responsibility Legislation, which sets the same 3% of Gross State Domestic Product (GSDP) cap on their annual budget deficits.
- The NK Singh committee(set up in 2016) recommendation: The debt to GDP ratio should be 7% for the central government, and 20% for the state governments together by the FY 2022 – 23. Fiscal deficit: By FY 2022 – 23, the fiscal deficit should be 5% of GDP.
Conclusion:
The recent political move of going back to the old pension scheme by some of the state governments such as Jharkhand, and Himachal Pradesh may aggravate the fiscal imbalance of the states.
Insta Links
- Utilize fiscal room to ramp up capital spending
- Five states need to take steps to stabilise debt levels: RBI
- Centre-State Relation
Prelims Links
Which of the following is/are included in the capital budget of the Government of India? (UPSC 2016)
- Expenditure on acquisition of assets like roads, buildings, machinery, etc,
- Loans received from foreign governments
- Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: D
With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? (UPSC CSE 2015)
- It has increased the share of States in the central divisible pool from 32 per cent to 42 per cent.
- It has made recommendations concerning sector-specific grants.
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: A
Mains Links
Q. Increasing fiscal deficit of states is a cause of worry and there is a considerable need to focus on state government finances. Analyze. (250 words)
