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The Centre's Net Borrowing Ceiling (NBC) on State borrowing raises concern over fiscal autonomy.
The Net Borrowing Ceiling (NBC) is a fiscal measure set by the Union government to limit how much states can borrow each year. The NBC for fiscal year 2023-24 is set at 3% of each state's projected Gross State Domestic Product (GSDP), as per the Fifteenth Finance Commission's recommendations.
Why in the News? |
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How will it affect Kerala? |
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State Borrowing under Indian Constitution |
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How FRBM Act impacts state borrowing? |
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Supreme Court’s interim ruling on the NBC |
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Concern |
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Way Forward |
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GOVERNMENT BORROWING OR PUBLIC DEBT
Source:
PRACTICE QUESTION Q.Which of the following will be the possible consequences of increasing Government borrowing? 1. Crowding out effect 2. Higher interest rates 3. Lower economic growth Select the correct answer using the codes given below: A) 1 and 2 only B) 2 and 3 only C) 1 and 3 only D) 1, 2 and 3 Answer: D Explanation: Statement 1 is correct: When the government increases its spending, it can reduce or eliminate private sector spending. This is because the government requires more revenue to spend, which can be obtained by increasing taxes or borrowing money. Higher taxes have the potential to reduce individual and business income and spending. Statement 2 is correct: When the government borrows more to meet its expenditure, it creates a Crowding out effect, which increases the borrowing interest rates. Higher interest rates may reduce private investment and output growth. Statement 3 is correct: When the government borrows a large sum of money for an extended period, the amount of financial capital available to private sector firms decreases. A prolonged period of budget deficits can reduce economic growth. |
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