Q. With reference to deficits in Indian public finance, consider the following statements:
1.‘Monetised Deficit’ refers to the portion of fiscal deficit financed through Reserve Bank of India purchases of government securities, leading to money supply expansion.
2.‘Surplus Budget’ occurs when total receipts exceed total expenditure, allowing debt reduction or reserve accumulation.
3.‘Deficit Budget’ is always undesirable, as it invariably causes inflation regardless of economic conditions.
4.Ad hoc Treasury Bills were a key instrument for monetised deficit until their discontinuation in 1997.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation:
Statement 1: Correct. Monetised deficit involves RBI directly funding government shortfalls, injecting liquidity into the economy.
Statement 2: Correct. A surplus budget reflects fiscal prudence, enabling repayment of liabilities or building buffers.
Statement 3: Incorrect. Deficit budgets can be expansionary and beneficial during recessions to stimulate growth.
Statement 4: Correct. These short-term instruments facilitated automatic RBI financing until phased out to curb inflationary pressures.
