Daily Static Quiz Prelims Practice 2027
Effective Revenue Deficit was introduced in the Union Budget 2011–12; it equals the Revenue Deficit minus grants for the creation of capital assets, separating out the part of revenue spending that funds asset creation through States and other bodies. The other years are distractors tied to the FRBM story: 2004–05 was when the FRBM Rules came into effect after the FRBM Act, 2003; 2008–09 saw FRBM targets suspended due to the global financial crisis; and 2016–17 is when the N.K. Singh Committee was set up to review the FRBM framework.
- Tax buoyancy captures the effect of discretionary policy changes on revenue, while tax elasticity measures the response of revenue excluding such changes.
- Grants given for the creation of capital assets are classified as capital expenditure in government accounts.
Statement 1 is correct — buoyancy includes the effect of new taxes or rate changes, while elasticity excludes discretionary changes; a buoyancy above 1 means tax revenue is growing faster than the base, such as GDP. Statement 2 is incorrect — grants for creating capital assets are classified as revenue expenditure in government accounts, because the asset is created by the recipient, not by the government giving the grant. This is precisely why the Effective Revenue Deficit was introduced.
Option (b) is incorrect — the SDF lets banks deposit surplus funds with the RBI without collateral, which is its key difference from the reverse repo, which needed government securities; the SDF rate is the floor of the corridor, normally 25 bps below repo. Options (a), (c), and (d) are all correct — T-Bills carry no coupon, with the return being the gap between the discounted issue price and face value; CRR balances earn no interest, which makes CRR a cost to banks; and Masala Bonds are rupee-denominated bonds issued abroad, so currency risk shifts from the Indian borrower to the foreign investor.
- Assertion (A): India's Gross National Income is generally lower than its Gross Domestic Product.
- Reason (R): India's Net Primary Income from Abroad is generally negative.
Assertion A is correct — India's GNI is generally below its GDP. Reason R is correct and explains A, since GNI = GDP + Net Primary Income from Abroad (NPIA), and India pays more as interest, dividends and profits to non-residents than its residents earn abroad, so NPIA is negative and pulls GNI below GDP. Remittances are secondary income and do not enter this calculation, which is a frequent trap.
- GDP equals Gross Value Added plus product taxes minus product subsidies.
- A loan generally becomes a Non-Performing Asset when interest or principal remains overdue for more than 60 days.
- According to Engel's Law, absolute spending on food falls as household income rises.
- The three pillars of Basel III are capital requirements, supervisory review and market discipline.
Statement 1 is correct — GDP = GVA + product taxes − product subsidies, where GVA is output minus intermediate consumption. Statement 2 is incorrect — the NPA threshold is more than 90 days overdue, and NPAs are classified as substandard, doubtful and loss assets. Statement 3 is incorrect — Engel's Law says the share of food in total spending falls as income rises, while absolute food spending may still rise. Statement 4 is correct, as Basel III's three pillars are minimum capital requirements, supervisory review and market discipline.
