Previous Year Question
Consider the following statements:
The Fiscal Responsibility and Budget Management 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.
The Central Government has domestic liabilities of 21% of GDP, as compared to 49% of GDP of the State Governments.
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 liabilities to the latter.
Which of the statements given above is/are correct?
1 only
2 and 3 only
1 and 3 only
1, 2 and 3
Correct Answer: C
Detailed Solution
Statement 1 is correct
The FRBM Review Committee, chaired by N. K. Singh, recommended that the General Government debt—combined debt of the Centre and States—should be reduced to 60% of GDP by 2023.
The recommended composition was:
Government | Recommended debt-to-GDP ratio |
Central Government | 40% |
All State Governments | 20% |
General Government | 60% |
The Committee also recommended retaining 3% of GDP as the principal operational target for the Fiscal Deficit. It regarded the Debt-to-GDP ratio as an important medium-term fiscal-policy anchor.
Therefore, Statement 1 is correct.
Statement 2 is incorrect
The figures relating to the Centre and the States have been reversed in the statement.
At the relevant time:
Central Government liabilities were approximately 49%–49.4% of GDP.
The combined liabilities of the State Governments were approximately 21% of GDP.
The statement assigns 21% to the Centre and 49% to the States. Therefore, Statement 2 is incorrect.
Statement 3 is correct
Borrowing by State Governments is governed by Article 293 of the Constitution.
Under Article 293(3), a State cannot raise a loan without the consent of the Government of India if:
Any part of a loan made to that State by the Government of India remains outstanding; or
A guarantee given by the Government of India or its predecessor government remains outstanding.
Article 293(4) permits the Union Government to impose conditions while granting such consent.
Consent is not constitutionally required for every State borrowing in every circumstance. It becomes mandatory in the specific circumstances prescribed under Article 293(3).