Aspirant Academy

Economy

Model Answer Frameworks

State Budget and Fiscal Management

Paper I · Unit 2 Section 12 of 16 0 PYQs 39 min
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Model Answer Frameworks

5-Mark Answer Template (50 words)

Question: What are the main sources of Rajasthan's revenue receipts and what was the fiscal deficit in 2023-24?

Model Answer:

Rajasthan's Revenue Receipts (2023-24): ₹2,03,276 crore. Own Tax Revenue (₹94,086 crore): SGST (+12.50%), Stamps & Registration (+12.12%), State Excise, Vehicle Tax. Non-Tax Revenue: mining royalties (limestone, zinc, Barmer crude oil). Central Transfers: 15th Finance Commission devolution (5.979% share), CSS grants. Fiscal Deficit: ₹65,580 crore = 4.31% of GSDP, exceeding FRBM target of 3%.

Word budget: Own tax heads (15 words) + Non-tax (8 words) + Central transfers (8 words) + Fiscal deficit data (12 words) + FRBM reference (7 words) = ~50 words

10-Mark Answer Template A (150 words)

Question: Critically examine Rajasthan's fiscal management in 2023-24 with reference to FRBM compliance. What are the structural challenges in achieving fiscal consolidation?

Model Answer:

Introduction: Fiscal management refers to managing state revenues, expenditures, and debt in line with statutory norms; Rajasthan's primary benchmark is the Rajasthan FRBM Act, 2005.

Key Points:

  1. FRBM Non-Compliance: Fiscal Deficit at ₹65,580 crore = 4.31% of GSDP exceeds the 3% FRBM target. Revenue Deficit ₹38,955 crore indicates borrowing to fund current expenditure. Total Fiscal Liabilities of ₹5,71,639 crore = 37.57% of GSDP breach the 35% ceiling. (Source: Economic Review 2025-26)

  2. Committed Expenditure: Salaries, pensions (OPS liability), and interest payments together consume ~60% of revenue expenditure — severely compressing fiscal space for developmental spending.

  3. Revenue Gap: Own Tax/GSDP at ~6.2% is below the 8-9% benchmark of developed states. SGST dependence post-GST removes autonomous tax-setting power.

  4. Structural Reform Path: World Bank SPFM project (US$31 million) targets treasury management, tax administration, and public procurement efficiency. Capital outlay grew 34.6% in 2023-24 — investment push within fiscal constraints.

Conclusion: Rajasthan's fiscal consolidation requires sustained own revenue growth, committed expenditure rationalisation (particularly pension liability management), and CAPEX efficiency to achieve FRBM compliance by 2026-27.

Word budget: Introduction (15) + Point 1 (40) + Point 2 (30) + Point 3 (25) + Point 4 (25) + Conclusion (25) = ~160 words (slightly above; trim Point 4 to fit exactly 150)

10-Mark Answer Template B (150 words)

Question: What is the role of the State Finance Commission in Rajasthan? How does it determine the financial resources of local bodies?

Model Answer:

Introduction: The State Finance Commission (SFC), mandated under Articles 243-I and 243-Y of the Constitution (73rd/74th Amendment, 1992), recommends devolution from the state Consolidated Fund to Panchayati Raj Institutions and Urban Local Bodies every five years.

Key Points:

  1. Constitutional Mandate: Rajasthan has constituted 6 SFCs since 1994. The 6th SFC covers the period 2020-25 and recommends the principles governing devolution of state taxes, user charges, and grants to the three-tier PRI structure (11,000+ GPs, 295 PSs, 33 ZPs) and 201 ULBs.

  2. Devolution Criteria: SFC determines horizontal sharing among local bodies based on population, area, backwardness, and own revenue effort. Performance-linked grants incentivise ODF status and property tax collection.

  3. 15th Finance Commission Complement: Tied grants of approximately ₹12,400 crore from 15th FC (2021-26) to Rajasthan's rural and urban local bodies for health and sanitation — supplementing SFC devolution.

  4. Fiscal Capacity Gap: Despite SFC devolution, PRIs and ULBs in Rajasthan remain fiscally dependent — own revenue constitutes less than 20% of local body expenditure; transfer dependency is structural.

Conclusion: Strengthening local body own-source revenues (property tax, profession tax) alongside SFC devolution is essential for genuine fiscal decentralisation under Viksit Rajasthan 2047.