Bihar's Pre-Election Freebies Spark Debate on Fiscal Prudence

Answer: B

Statement 1 is incorrect. The Supreme Court has expressed concerns but has not declared all pre-election promises as unconstitutional 'freebies'. It has called for a balanced approach and debate on the issue, distinguishing between genuine welfare and irrational freebies, but has not issued a blanket ban. Statement 2 is incorrect. While the ECI has issued guidelines regarding election manifestos, it lacks the statutory power to regulate or prohibit promises made in manifestos, as it falls outside the Model Code of Conduct's direct purview regarding 'corrupt practices'. The SC has urged the ECI to frame guidelines, but the ECI's power is limited in this regard without legislative backing. Statement 3 is correct. Article 293 deals with the borrowing powers of states. It allows states to borrow within India upon the security of their consolidated fund, but also states that a state cannot, without the consent of the Government of India, raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India. Extensive freebie distribution can significantly increase state debt, potentially requiring central government consent for further borrowing and impacting fiscal health.

Answer: D

Statement 1 is correct. A high fiscal deficit means the government is borrowing more to meet its expenses. This leads to higher interest payments on accumulated debt, which consumes a larger portion of the state budget, leaving less for crucial capital expenditure (e.g., infrastructure, education, health) that drives long-term growth. Statement 2 is correct. The FRBM Act, 2003, was enacted by the Central Government. However, most states have also enacted their own Fiscal Responsibility Legislations (FRLs) based on the recommendations of the 12th Finance Commission, mirroring the objectives of the central FRBM Act to ensure fiscal discipline at the state level. Statement 3 is correct. When a state's debt-to-GDP ratio becomes unsustainable or its fiscal health deteriorates due to excessive borrowing (often for non-productive uses like freebies), its credit rating can be downgraded. This signals higher risk to lenders, leading to higher interest rates on future loans or even difficulty in securing new loans, thereby trapping the state in a vicious cycle of debt.

Answer: C

The Supreme Court has primarily highlighted concerns about the fiscal implications of extensive freebie distribution. It has repeatedly questioned their impact on the economy, emphasizing that such practices can strain state finances, lead to unsustainable debt, and compromise long-term economic health. While other options might be related concerns, the core judicial concern has been fiscal prudence and economic stability. Option A is too specific and not the primary concern highlighted by the SC. Option B is incorrect as the ECI, not the SC, primarily deals with MCC violations, and the SC has noted the ECI's limitations in regulating manifesto promises. Option D, while a valid ethical concern, has not been the central point of the SC's intervention, which has focused more on the economic and fiscal aspects.