UPSC Prelims Practice Questions — Damocles’ sword over Kerala’s fortunes

Q1. Which institution publishes the annual report titled 'State Finances: A Study of Budgets', the principal comparative source of fiscal indicators (revenue deficit, fiscal deficit and debt) for Indian States such as Kerala?

• A. Reserve Bank of India
• B. Comptroller and Auditor General of India
• C. NITI Aayog
• D. Ministry of Statistics and Programme Implementation

Q2. With reference to Kerala's 2025-26 Budget estimates, consider the following statements: 1. The revenue deficit is estimated at about 1.9% of GSDP. 2. The fiscal deficit is targeted at about 3.2% of GSDP. 3. The GSDP (at current prices) is projected at about Rs 14.27 lakh crore. 4. Capital expenditure is budgeted at about 5% of GSDP. Which of the statements given above are correctly identified?

1. The revenue deficit is estimated at about 1.9% of GSDP.
2. The fiscal deficit is targeted at about 3.2% of GSDP.
3. The GSDP (at current prices) is projected at about Rs 14.27 lakh crore.
4. Capital expenditure is budgeted at about 5% of GSDP.

• A. 1, 2 and 3
• B. 1 and 4 only
• C. 2, 3 and 4
• D. 1, 2, 3 and 4

Q3. In the context of KIIFB, the term 'off-budget borrowings' most precisely refers to:

• A. Borrowings raised by a state-owned entity that are serviced/repaid from the government's budget or revenues but kept outside the State budget and fiscal deficit computation
• B. Short-term advances from the RBI to bridge temporary cash-flow mismatches of the State
• C. Market loans raised directly by the State through dated securities within its net borrowing ceiling
• D. Grants received from the Union government that are not routed through the State budget

Q4. The Kerala Infrastructure Investment Fund Board (KIIFB) derives its statutory basis from which one of the following?

• A. The Kerala Infrastructure Investment Fund Act, 1999
• B. The Kerala Fiscal Responsibility Act, 2003
• C. The Kerala Infrastructure Investment Fund Act, 2016
• D. Article 293 of the Constitution of India

Q5. Under the Constitution, the Finance Commission — including the Sixteenth Finance Commission whose award covers 2026-31 — is constituted by which authority?

• A. The President of India
• B. The Prime Minister of India
• C. The Union Ministry of Finance
• D. The NITI Aayog

Q6. How many criteria constitute the horizontal tax-devolution formula adopted by the Sixteenth Finance Commission for distributing the divisible pool among States?

• A. Four
• B. Five
• C. Six
• D. Seven

Q7. The 'Post-Devolution Revenue Deficit Grant' is best defined as:

• A. A grant under Article 275, recommended by the Finance Commission, given to States whose revenue accounts remain in deficit even after devolution of their share of the divisible pool
• B. A grant released by the RBI to States running a deficit in their public account
• C. A grant recommended by NITI Aayog under Article 282 to bridge States' capital-account gaps
• D. A loan given by the Union Finance Ministry to States that breach their fiscal deficit target

Q8. With reference to the treatment of revenue deficit grants by successive Finance Commissions, consider the following statements: 1. The Fifteenth Finance Commission recommended post-devolution revenue deficit grants, and Kerala was among the recipient States. 2. The Sixteenth Finance Commission has discontinued revenue deficit grants for its award period. 3. The Sixteenth Finance Commission raised the States' share in the divisible pool from 41% to 50%. Which of the statements given above are correct?

1. The Fifteenth Finance Commission recommended post-devolution revenue deficit grants, and Kerala was among the recipient States.
2. The Sixteenth Finance Commission has discontinued revenue deficit grants for its award period.
3. The Sixteenth Finance Commission raised the States' share in the divisible pool from 41% to 50%.

• A. 1 and 2 only
• B. 2 and 3 only
• C. 1 and 3 only
• D. 1, 2 and 3

Q9. The Net Borrowing Ceiling that operationalises the annual borrowing limit of State governments — and against which off-budget borrowings are now netted — is fixed and administered by which body?

• A. The Department of Expenditure, Ministry of Finance
• B. The Reserve Bank of India
• C. The Finance Commission
• D. The Comptroller and Auditor General of India

Q10. The 'Kerala Model' of development, as used by development economists, most precisely denotes:

• A. The attainment of high human-development outcomes — high literacy, low infant mortality and long life expectancy — despite relatively low per-capita income and modest economic growth
• B. Rapid industry-led GDP growth financed largely by private capital investment
• C. A model of fiscal surplus achieved through low welfare spending and high tax buoyancy
• D. Export-oriented growth driven by manufacturing and special economic zones

Q11. With reference to Kerala's public sector enterprises and government guarantees, consider the following statements: 1. Guarantees extended by the State on the borrowings of its enterprises and of KIIFB are classified as contingent liabilities of the State. 2. A majority of Kerala's State-level public enterprises are loss-making. 3. Between January 2021 and December 2022, the State sanctioned/refreshed guarantees for KIIFB borrowings worth about Rs 12,062 crore. 4. Contingent liabilities are included within the State's fiscal deficit in the year the guarantee is extended. Which of the above is/are NOT correct?

1. Guarantees extended by the State on the borrowings of its enterprises and of KIIFB are classified as contingent liabilities of the State.
2. A majority of Kerala's State-level public enterprises are loss-making.
3. Between January 2021 and December 2022, the State sanctioned/refreshed guarantees for KIIFB borrowings worth about Rs 12,062 crore.
4. Contingent liabilities are included within the State's fiscal deficit in the year the guarantee is extended.

• A. 1 only
• B. 2 and 3
• C. 4 only
• D. 3 and 4

Q12. Low capital expenditure relative to revenue expenditure constrains long-term growth. With reference to the classification of government expenditure, consider the following: 1. Expenditure on construction of roads, bridges and irrigation works. 2. Payment of salaries, pensions and interest on outstanding debt. 3. Acquisition of machinery, equipment and buildings. 4. Loans and advances disbursed by the State for the creation of capital assets. Which of the above is/are NOT correctly classified as capital expenditure?

1. Expenditure on construction of roads, bridges and irrigation works.
2. Payment of salaries, pensions and interest on outstanding debt.
3. Acquisition of machinery, equipment and buildings.
4. Loans and advances disbursed by the State for the creation of capital assets.

• A. 1 only
• B. 2 only
• C. 3 and 4
• D. 2 and 4