Economics • Indian EconomyMedium
How does the heavy fiscal burden of power subsidies provided to the agricultural and domestic sectors in Punjab impact the state's capital expenditure outlay?
A. It crowds out productive capital expenditure allocations for infrastructure development by expanding committed revenue expenditures✓ Correct Answer
B. It generates a permanent fiscal surplus that is invested directly in foreign sovereign bonds
C. It eliminates all indirect taxation levied by the municipal corporations across urban centers
D. It increases the state's tax-to-GSDP ratio to the highest level among all Indian states
💡 Solution & Explanation
Extensive power subsidies consume a large share of the state revenue budget, forcing fiscal authorities to curtail capital outlay on roads, irrigation networks, and public infrastructure. Subsidies create fiscal deficits rather than budget surpluses. Municipal indirect taxes are governed by separate municipal acts. Power subsidies do not elevate the overall tax-to-GSDP ratio, as tax revenues depend on commercial and industrial activity.
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