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Economics · 2026 · 6 marks
Government Budget and the EconomyGovernment Budget – Meaning and its Components6 marksApplylong answer
CBSE 2026 · Region 4 · Set 1 · Q16
(i)“The Credit Linked Subsidy Scheme (CLSS) is a key component of the Pradhan Mantri Awas Yojana (PMAY), aimed at providing affordable housing for the Economically Weaker Sections (EWS), Lower-income Groups (LIG), and Middle-income Groups (MIG) in India.”Identify and explain the government budget objective highlighted in the above statement.(ii)Differentiate between the two types of tax revenue sources of the government.(i)Medha, an economics student, was studying about the expenditure on defence incurred by the government in the form of acquiring new platforms (jets, submarines etc.), and salaries and pensions of armed forces personnel.She classified both the expenditures as capital expenditure.Do you agree with Medha’s views ? Give valid explanation in support of your answer.(ii)If, for an economy, Primary Deficit is ₹ $\displaystyle 1,000$ crore and interest payments are $\displaystyle 20$% of total borrowings of the government, then calculate the value of fiscal deficit.
(i)
“The Credit Linked Subsidy Scheme (CLSS) is a key component of the Pradhan Mantri Awas Yojana (PMAY), aimed at providing affordable housing for the Economically Weaker Sections (EWS), Lower-income Groups (LIG), and Middle-income Groups (MIG) in India.”
Identify and explain the government budget objective highlighted in the above statement.
(ii)
Differentiate between the two types of tax revenue sources of the government.
(i)
Medha, an economics student, was studying about the expenditure on defence incurred by the government in the form of acquiring new platforms (jets, submarines etc.), and salaries and pensions of armed forces personnel.
She classified both the expenditures as capital expenditure.
Do you agree with Medha’s views ? Give valid explanation in support of your answer.
(ii)
If, for an economy, Primary Deficit is ₹ $\displaystyle 1,000$ crore and interest payments are $\displaystyle 20$% of total borrowings of the government, then calculate the value of fiscal deficit.
Marking-scheme solution
(a) (i) The highlighted government budget objective is the ‘Redistribution Function’.Government can reduce inequalities of income through taxes and public expenditure like subsidies. The Credit Linked Subsidy Scheme (CLSS) of the government aims at providing affordable housing for the Economically Weaker Sections (EWS), Lower-income Groups (LIG) and Middle-income Groups (MIG) in India. It will reduce the financial burden on these groups and will promote equitable distribution of income, thereby bridging the gap between rich and poor.(a) (ii) The two types of tax revenue sources of the government are Direct Taxes and Indirect Taxes.Direct taxes are those taxes whose impact and incidence lies on the same entity. In other words, the liability of paying direct taxes can’t be shifted.Whereas;Indirect taxes are those taxes whose impact and incidence may lie on different entities. In other words, the liability of paying indirect taxes can be shifted.(b) (i) No. The expenditure on salaries and pensions of armed forces personnel is revenue expenditure as it neither leads to creation of assets nor reduces liabilities of the government.However, expenditure incurred by the government on acquiring new platforms (jets, submarines etc.) is capital expenditure as it leads to the creation of assets for the government.(b) (ii) Primary Deficit (PD) = Fiscal Deficit (FD) – Interest Payment (IP)$\displaystyle 1000$ = FD – $\displaystyle 20$% of FD$\displaystyle 1000$ = $\displaystyle 80$% of FDFD = $\displaystyle \frac{1000 \times 100}{80}$Fiscal Deficit = ₹ $\displaystyle 1,250$ crore
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