Match List-I (argument about deficits and debt) with List-II (what NCERT says about it):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Deficits crowd out private borrowers | (I) | Need not hold if there are unutilised resources |
| (B) | Deficits are inflationary | (II) | Holds, since goods have to be sent abroad corresponding to the interest payments |
| (C) | Debt is a burden on future generations | (III) | Need not hold if deficits raise production, income and therefore saving |
| (D) | Debt owed to foreigners is a burden | (IV) | Need not hold if the return on infrastructure investment is greater than the rate of interest |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) - (III), (B) - (I), (C) - (IV), (D) - (II)
Each argument against deficits or debt has a condition under which it may fail. Only the burden of foreign debt holds without such a condition.
| List-I | List-II | Reason |
|---|---|---|
| (A) Deficits crowd out private borrowers | (III) Need not hold if deficits raise production, income and therefore saving | Savings are not fixed. More income brings more saving, so both government and industry can borrow more. |
| (B) Deficits are inflationary | (I) Need not hold if there are unutilised resources | Idle resources let output rise with demand, so prices need not rise. |
| (C) Debt is a burden on future generations | (IV) Need not hold if the return on infrastructure investment is greater than the rate of interest | Future generations may then be better off. |
| (D) Debt owed to foreigners is a burden | (II) Holds, since goods have to be sent abroad corresponding to the interest payments | Purchasing power leaves the nation. |
NCERT (2026-27): “Other Perspectives on Deficits and Debt: … However, if there are unutilised resources, output is held back by lack of demand. A high fiscal deficit is accompanied by higher demand and greater output and, therefore, need not be inflationary. It has been argued that there is a decrease in investment due to a reduction in the amount of savings available to the private sector. This is because if the government decides to borrow from private citizens by issuing bonds to finance its deficits, these bonds will compete with corporate bonds and other financial instruments for the available supply of funds. If some private savers decide to buy bonds, the funds remaining to be invested in private hands will be smaller. Thus, some private borrowers will get ‘crowded out’ of the financial markets as the government claims an increasing share of the economy’s total savings. However, one must note that the economy’s flow of savings is not really fixed unless we assume that income cannot be augmented. If government deficits succeed in their goal of raising production, there will be more income and, therefore, more saving. In this case, both government and industry can borrow more. Also, if the government invests in infrastructure, future generations may be better off, provided the return on such investments is greater than the rate of interest. The actual debt could be paid off by the growth in output. The debt should not then be considered burdensome. The growth in debt will have to be judged by the growth of the economy as a whole.” “… However, any debt that is owed to foreigners involves a burden since we have to send goods abroad corresponding to the interest payments.” |