Consider the following statements regarding fiscal deficit of Rajasthan : A. The actual fiscal deficit in the year 2022-23 has been 3.76 percent of the State GDP. B. This is less than the limit prescribed by the F.R.B.M. Act, 2005. C. The fiscal deficit of 2022-23 was higher than that of 2021-22. Choose the correct option :

Correct — option (4), All A, B and C are correct.

All three statements can be checked against the Government of Rajasthan's Economic Review 2023-24, Chapter 10 (State Finance and Other Resources for Development).

A is correct. The actual fiscal deficit for 2022-23 was ₹51,029 crore, which the Review puts at 3.76 per cent of GSDP.

B is correct. The Review sets 3.76 per cent against a permissible limit of 4.37 per cent under the F.R.B.M. Act, 2005. That limit includes extra borrowing room of 0.50 per cent for the power sector and 0.37 per cent for 50-year loans under the special assistance to states scheme.

C is correct in rupee terms. The deficit rose from ₹48,238 crore in 2021-22 to ₹51,029 crore in 2022-23.

All three hold, so the answer is option (4), All A, B and C are correct.

The idea to remember: a deficit can rise in rupees while falling as a share of GSDP. Here the ratio fell from 4.04 to 3.76 per cent because GSDP grew faster than the deficit.

Why the others are wrong

• (1)
  Both A and C are correct. — A and C are correct, but this code drops B, which is also correct.

  The Economic Review compares the 2022-23 ratio of 3.76 per cent with a permissible limit of 4.37 per cent under the F.R.B.M. Act, 2005. The deficit was within that limit, so B holds as well.

• (2)
  Both A and B are correct. — This code drops C. It would fit only if C compared deficit ratios: 4.04 per cent of GSDP in 2021-22 against 3.76 per cent in 2022-23.

  C compares the deficits themselves, and in rupees the deficit rose, from ₹48,238 crore to ₹51,029 crore. RPSC's key marks C correct, which fits only that reading.

• (3)
  Both B and C are correct. — This code drops A, but A is the Review's own figure: the 2022-23 fiscal deficit of ₹51,029 crore equals 3.76 per cent of GSDP (GSDP ₹13,57,851 crore).

  B and C are also correct, so the full set is A, B and C.

Fiscal deficit is the gap between a government's total expenditure and its total receipts other than borrowings. It measures how much the government must borrow in the year.

It is reported in two ways: in rupees, and as a percentage of Gross State Domestic Product (GSDP). Fiscal rules target the ratio, because it scales borrowing to the size of the economy.

Rajasthan's Fiscal Responsibility and Budget Management Act, 2005 provides targets for reducing the State's deficits and debt. The permissible deficit in a given year can be higher than the base limit when the Centre allows extra borrowing tied to conditions, such as power sector reforms.

Key facts

• Rajasthan's actual fiscal deficit in 2022-23 was ₹51,029 crore, or 3.76 per cent of GSDP (Economic Review 2023-24).
• The permissible limit for 2022-23 under the F.R.B.M. Act, 2005 was 4.37 per cent of GSDP, including 0.50 per cent for power sector and 0.37 per cent for 50-year loans.
• Rajasthan's fiscal deficit in 2021-22 was ₹48,238 crore, or 4.04 per cent of GSDP.
• Fiscal deficit to GSDP: 3.78% (2018-19), 3.77% (2019-20), 5.83% (2020-21), 4.04% (2021-22), 3.76% (2022-23).
• Rajasthan's GSDP at current prices was ₹13,57,851 crore in 2022-23, against ₹11,94,961 crore in 2021-22.

Common traps

• "Higher" needs a unit. In rupees the 2022-23 deficit was higher than 2021-22's; as a share of GSDP it was lower (3.76 against 4.04 per cent). Check whether a statement compares amounts or ratios.
• The permissible limit for a year can be higher than the base FRBM figure. The Review's 4.37 per cent for 2022-23 includes extra room for power sector reforms (0.50) and 50-year loans (0.37).
• Budget, revised and actual figures differ. The Revised Estimate of the 2022-23 deficit was ₹61,264 crore; the actual was ₹51,029 crore. A statement about the actual deficit uses the latter.

UnlockIAS will link similar questions from RAS Pre 2023 here once that paper is published on this site.

• practice — not a real PYQ

  According to the Economic Review 2023-24 of Rajasthan, the State's fiscal deficit as a percentage of GSDP in 2021-22 was –

  • (a)3.76 per cent
  • (b)4.04 per cent
  • (c)5.83 per cent
  • (d)3.77 per cent
  Answer(2) — The Review's Table 10.1 gives 4.04 per cent for 2021-22. Option (1) is the 2022-23 ratio, option (3) the 2020-21 ratio and option (4) the 2019-20 ratio.
• practice — not a real PYQ

  Rajasthan's fiscal deficit rose in rupees from 2021-22 to 2022-23, yet fell from 4.04 to 3.76 per cent of GSDP. Which of the following explains this?

  • (a)GSDP grew faster than the fiscal deficit
  • (b)Revenue receipts of the State fell
  • (c)The deficit was financed by loans from the Centre
  • (d)Interest payments were left out of the deficit
  Answer(1) — The deficit grew about 6 per cent (₹48,238 to ₹51,029 crore) while GSDP grew about 14 per cent, so the ratio fell. Option (2) is wrong: revenue receipts rose. Option (3) concerns how the deficit is financed, not its size. Option (4) fails because interest payments count in the fiscal deficit.