Question map
Consider the following statements : 1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments. 2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments. 3. As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter. Which of the statements given above is/are correct ?
Explanation
The correct answer is option C (statements 1 and 3 only).
**Statement 1 is correct:** The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt-to-GDP ratio of 60 per cent for the general (combined) Government by 2023, comprising 40 per cent for the Central Government and 20 per cent for the State Governments.[1]
**Statement 2 is incorrect:** The statement reverses the actual figures. The Central Government's domestic liabilities were significantly higher than the State Governments' liabilities, not 21% versus 49% as claimed in the statement. This makes statement 2 factually wrong.
**Statement 3 is correct:** A state cannot raise any loan without the consent of the Centre, if there is still outstanding any part of a loan made to the state by the Centre or in respect of which a guarantee has been given by the Centre.[2] This constitutional requirement under Article 293 makes it mandatory for states with outstanding Central liabilities to seek permission before borrowing.
Therefore, only statements 1 and 3 are correct, making option C the right answer.
Sources- [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c} > p. 126
- [2] Laxmikanth, M. Indian Polity. 7th ed., McGraw Hill. > Chapter 15: Centre State Relations > I Borrowing by the Centre and the States > p. 157
PROVENANCE & STUDY PATTERN
Full viewThis is a classic 'Committee + Constitution + Data' hybrid. Statement 1 and 3 are standard textbook material (NK Singh Report & Laxmikanth). Statement 2 is a 'Data Swap' trap—UPSC inverted the debt figures for Centre and States to test your macroeconomic common sense.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Did the FRBM Review Committee Report recommend a combined (general) government debt‑to‑GDP target of 60% by 2023, with 40% for the Central Government and 20% for State Governments?
- Statement 2: According to the FRBM Review Committee Report or official government data around 2017–2018, were the Central Government's domestic liabilities 21% of GDP and the State Governments' domestic liabilities 49% of GDP?
- Statement 3: Under the Constitution of India (e.g., Article 293 and related provisions), is a State required to obtain the Central Government's consent to raise any loan if the State has outstanding liabilities to the Central Government?
- Explicitly states the committee's recommendation to reduce overall government debt to 60% by 2022-23 with a 40% threshold for Centre and 20% for States.
- Mentions this allocation (40% Centre, 20% States) as the combined target, directly matching the statement's substance.
- Directly asserts the FRBM Review Committee recommended a 60% general government debt ratio by 2023, comprising 40% Centre and 20% States.
- Language mirrors the statement's numbers and timeline, providing corroborative support.
- Contains the same formulation listing a 60% general government target with 40% Centre and 20% States by 2023 as a stated proposition.
- Serves as an additional source echoing the recommendation's numbers and deadline.
This source lists the three statements (2018) including (ii) that the Centre has domestic liabilities of 21% of GDP and States 49% — showing the exact claim appears in textbooks as a proposition to be evaluated.
A student could treat this as a candidate (exam) statement and check original FRBM or government debt tables for 2017–18 to confirm or refute it.
Explicitly records the FRBM Review Committee's recommended split of general government debt: 40% for Centre and 20% for States (i.e., a 40:20 target), giving a normative benchmark to compare against the claimed 21:49 split.
Compare the claimed 21%/49% split to the FRBM recommendation (40%/20%) — large deviation would suggest the claim is inconsistent with the Review Committee's target.
Provides actual debt-to-GDP series for Centre and States for 2014–15 through 2022–23, showing for 2017–18 Centre ≈46.0% and States ≈25.1% (i.e., data-based values around that period).
Use these reported 2017–18 figures as a concrete comparison: if Centre ≈46% and States ≈25%, the 21%/49% claim is unlikely to match official data.
States the FRBM objectives that general government debt should not exceed 60% of GDP and central government debt not to exceed 40% by target year — gives policy targets against which any reported levels can be judged.
A student can check whether the claimed breakdown (21% + 49% = 70% combined) aligns with the FRBM target of 60% combined; a 70% combined figure would exceed the stated policy goal.
Notes that states have fixed fiscal deficit limits and discusses fiscal consolidation paths, implying availability of state-level fiscal rules and data that can be checked for liabilities estimates.
Prompt checking state fiscal reports/combined state debt tables for 2017–18 to verify whether states' domestic liabilities were as high as 49% of GDP.
- Directly states that while any part of such a loan remains outstanding, no fresh loan can be raised by the State without the consent of the Government of India.
- Specifies that the Government of India may impose terms when giving its consent — showing both the requirement and the Centre's control.
- Explicitly affirms that a State cannot raise any loan without the Centre's consent if any part of a loan made by the Centre remains outstanding.
- Mentions same restriction also applies where the Centre has given a guarantee — reinforcing the Article 293 rule.
- Summarises Article 293: States need prior approval from the Centre for borrowing when they have taken debt from the Centre and pending dues exist.
- Notes the practical prevalence of this permission-seeking practice, linking the constitutional rule to real-world application.
- [THE VERDICT]: Mixed Bag. Statement 3 is a Polity Sitter (Laxmikanth). Statement 1 is Standard Current Affairs. Statement 2 is a Logic Trap.
- [THE CONCEPTUAL TRIGGER]: Public Finance > Fiscal Policy > FRBM Act & Centre-State Financial Relations (Article 293).
- [THE HORIZONTAL EXPANSION]: Memorize NK Singh Committee specifics: (1) Debt Target 60% (40% Centre, 20% States), (2) Fiscal Deficit glide path (2.5% by 2023), (3) Escape Clause triggers (0.5% deviation for war/calamity), (4) Creation of an autonomous Fiscal Council.
- [THE STRATEGIC METACOGNITION]: When you see comparative data (Centre vs State), apply the 'Fiscal Capacity Test'. The Centre has sovereign borrowing powers; States are constrained. Therefore, Centre's debt is historically ~45-50% and States ~20-25%. Statement 2 claims the opposite (Centre 21%, State 49%), which is structurally impossible.
The committee recommendation specifying 60% combined debt and 40/20 split is the core claim of the statement.
High-yield: knowing committee-level FRBM recommendations (targets and allocation between Centre and States) is frequently tested in polity/economy questions. It connects to fiscal policy, intergovernmental finances, and FRBM amendments. Master by memorizing key committee recommendations and contrasting them with statutory targets.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Major Recommendations of the N. K. Singh Committee: > p. 116
References distinguish 'general government debt' (Centre + States) and set separate thresholds for Centre and combined general government.
Important for UPSC: questions often ask metrics (general vs central debt), legal obligations, and implications for fiscal rules. Understanding the metric helps answer questions on fiscal consolidation, debt sustainability, and Centre-State fiscal relations.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.7 Fiscal Responsibility and Budget Management (FRBM) Act 2003 > p. 156
Evidence includes time-series debt-to-GDP figures for Centre and States, useful to compare recommendations with reality.
Useful for analysis/answers that evaluate feasibility of targets or policy choices; connects to macroeconomic indicators and budgeting. Learn to use such data to critique policy targets and construct balanced answers.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Govt. of India (Central Govt.) Total Debt/Liabilities = 1 + 2 + 3 + 4 > p. 162
The claim gives specific debt-to-GDP shares for Centre and States; the references contain official debt-to-GDP figures and FRBM targets for these categories.
High-yield for UPSC because questions often ask about composition of public debt and fiscal sustainability. Mastering this helps compare central, state and combined (general) government debt, and assess policy implications such as borrowing limits and consolidation paths. Practice by reading official tables and reconciling target vs actual values.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Govt. of India (Central Govt.) Total Debt/Liabilities = 1 + 2 + 3 + 4 > p. 162
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.7 Fiscal Responsibility and Budget Management (FRBM) Act 2003 > p. 156
FRBM-related references set recommended debt ceilings (general, centre, state) and target years — directly relevant to claims about 'according to FRBM'.
Important for static and current-affairs economy questions: FRBM targets frequently appear in prelims/GS papers. Knowing specific recommended ceilings, their rationale and timelines helps answer policy-evaluation and fiscal governance questions. Link this to broader fiscal rules and intergovernmental finance.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 4.7 Fiscal Responsibility and Budget Management (FRBM) Act 2003 > p. 156
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > FRBM Review Committee > p. 82
One reference provides a year-wise debt/GDP table for Centre and States, showing actual values around 2017–18 that contradict the claim.
UPSC often tests ability to interpret tables and spot inconsistencies between claims and official data. Skill is reusable across budget, fiscal indicators, and economic survey questions. Practice by extracting trends, computing shares and comparing stated targets vs reported figures.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Govt. of India (Central Govt.) Total Debt/Liabilities = 1 + 2 + 3 + 4 > p. 162
Article 293 is repeatedly cited in the references as the constitutional source that bars States from raising fresh loans while debts to the Centre remain outstanding.
High-yield for polity: explains a key Centre–State fiscal control mechanism and appears in questions on financial relations. Connects to topics on federal fiscal architecture, legislative powers, and inter-governmental checks. Master by memorising Article 293 rule, exceptions, and typical judicial/administrative interpretations.
- Introduction to the Constitution of India, D. D. Basu (26th ed.). > Chapter 25: DISTRIBUTION OF FINANCIAL POWERS > The States, similarly, have their receipts from- > p. 391
- Laxmikanth, M. Indian Polity. 7th ed., McGraw Hill. > Chapter 15: Centre State Relations > I Borrowing by the Centre and the States > p. 157
The NK Singh Committee also recommended an 'Escape Clause' allowing a deviation of up to 0.5% of GDP in deficit targets, but only for specific triggers: National Security, Acts of War, National Calamity, or Collapse of Agriculture/Structural Reforms.
Apply the 'Sovereign Dominance' logic to Statement 2. In India's federal structure, the Centre holds the major taxation and borrowing powers. It is economically absurd for State liabilities (49%) to be more than double the Centre's (21%). Eliminate Statement 2 immediately. This removes options (B) and (D). You are left with (A) or (C). Since Statement 3 is a basic Constitutional fact (Art 293), (C) becomes the obvious choice.
Link this to GS-2 (Federalism) and GS-3 (Intergenerational Equity). High Debt-to-GDP ratio violates intergenerational equity by passing the burden of repayment to future taxpayers, restricting the fiscal space for developmental expenditure.