SSC Selection Post 2025 PYQ — Question 14

Correct Answer: Government spending on infrastructure

Explanation

Fiscal policy in India refers to the use of government revenue collection (primarily through taxation) and government expenditure to influence the country's economy. It is formulated and implemented by the Ministry of Finance, Government of India.

Government spending on infrastructure—such as building roads, railways, ports, and power plants—is a direct instrument of fiscal policy. When the government increases capital expenditure on public works, it creates jobs, boosts demand for raw materials like steel and cement, and stimulates overall economic growth.

The other options—adjusting repo rates, regulating foreign exchange rates, and controlling the money supply—are part of Monetary Policy. In India, monetary policy is managed independently by the Reserve Bank of India (RBI) using tools like the Repo Rate, Cash Reserve Ratio (CRR), and Open Market Operations to manage liquidity and control inflation.

Key Points

The two main arms of fiscal policy are taxation (direct and indirect taxes) and government expenditure (capital and revenue spending).

Fiscal policy can be expansionary (increasing spending or cutting taxes to boost economic growth) or contractionary (decreasing spending or increasing taxes to cool down an overheating economy).

The structural details, allocations, and revenue targets of India's fiscal policy are presented annually before Parliament through the Union Budget.

Important Questions and Answers

Question: Which constitutional provision mandates the presentation of the annual financial statement, popularly known as the Union Budget, in India?

Answer: Article 112 of the Indian Constitution requires the government to present the Annual Financial Statement before Parliament.

Question: What is the term used to describe the situation when the government's total expenditure exceeds its total non-borrowed revenue in a financial year?

Answer: It is known as a Fiscal Deficit.