Other things remaining the same, how many of the following would reduce the fiscal deficit of the government?
(A) A rise in recovery of loans
(B) A rise in borrowing from the RBI
(C) A rise in receipts from disinvestment
(D) A rise in interest payments
(E) A rise in non-tax revenue
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Three
Fiscal deficit = total expenditure − (revenue receipts + non-debt creating capital receipts). A rise in either kind of receipt lowers it; borrowing only finances it.
(A) A rise in recovery of loans — Reduces it. Recovery of loans is a non-debt creating capital receipt.
(B) A rise in borrowing from the RBI — Does not reduce it. Borrowing is how the deficit is financed; it is not deducted.
(C) A rise in receipts from disinvestment — Reduces it. Sale of PSU shares is a non-debt creating capital receipt.
(D) A rise in interest payments — Does not reduce it. Interest is expenditure, so it raises the deficit.
(E) A rise in non-tax revenue — Reduces it. Non-tax revenue is a revenue receipt.
NCERT (2026-27): “5.2.1 Measures of Government Deficit … Fiscal Deficit: Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing” “Non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give rise to debt. Examples are recovery of loans and the proceeds from the sale of PSUs. …” “Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad” |