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Question

What does an increase in the ratio of revenue deficit to gross fiscal deficit indicate?

A
An increase in investment
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B
An increase in the utilisation of borrowed funds for revenue purposes
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C
An increase in the utilisation of borrowed funds for imports
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D
An increase in the utilisation of borrowed funds for lending
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Solution

The correct option is C An increase in the utilisation of borrowed funds for revenue purposes
Revenue deficit: Revenue expenditure of the Central Govt is composed of plan and non-plan expenditure of the Government and is met out of revenue receipts. In case of a gap in the revenue receipts and revenue expenditure, where the expenditure is on the higher side, there exists a revenue deficit which is financed from borrowed funds.

Fiscal deficit is the sum of budgetary deficit and the borrowed liabilities of the government for deficit financing. It indicates the total deficit of the fiscal policy.

An increase in the ratio of revenue deficit to gross fiscal deficit would indicate higher revenue deficit, which requires use of deficit financing/borrowing for the purpose of revenue expenditure, i.e, into those avenues which would not generate any productive returns in the future.

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