Daily RC and Vocabulary 3rd January 2026

Unenviable choice

Growth-generating capital expenditure can affect fiscal targets

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The Goods and Services Tax (GST) revenue of ₹1.74 lakh crore in December 2025 confirms just how narrow the government’s fiscal policy space is. The December data reflect the economic activity in November, the second month under the new, reduced GST rates. December’s revenues were marginally higher than the ₹1.7 lakh crore collected in November. This was expected. Any belief that the rate reductions would lead to an immediate and sustained increase in demand, and hence GST collections, was pure optimism. In reality, people are more likely to use that extra money to pad up savings or pare down debt, with increased consumption a more medium-term outcome. This happened following the income-tax rejig in Budget 2025 too, when the government effectively exempted people earning up to ₹12 lakh a year from income-tax. The GST and income-tax decisions were both welcome relaxations. However, at least for this year, they are going to cause the government more pain than gain. The most recent data on the government’s accounts reflect this. Total tax revenue stood at ₹13.9 lakh crore at the end of November 2025, 3.4% lower than in the same period of 2024-25. On the other hand, the Centre’s capital expenditure stood at ₹6.58 lakh crore in the April-November 2025 period, 28% higher than in the same period of the previous year. This jump in capital expenditure was balanced out by a much slower growth in revenue expenditure of 2.1%. However, of the two types of spending, the government has much less discretion over revenue expenditure, which comprises expenses such as salaries, pensions and interest on loans. These cannot be kept subdued for long.

The government has valiantly tried to bolster its earnings through the new excise and GST rates on tobacco products, not to mention the health and security cess on the manufacture of pan masala. However, since all these new rates and cesses will come into effect only on February 1, their full benefit will be felt only in the next financial year. Yet, the troubles for the government’s finances do not end there. The remarkably low levels of wholesale inflation this year — averaging -0.08% so far — have also meant that the size of the nominal GDP would likely be smaller than initially budgeted. This means that several ratios pegged to it, most pertinently the fiscal deficit and debt-GDP, would automatically come in larger than earlier estimated. The Centre has displayed commendable fiscal discipline over the last few years. However, this year, it has placed before itself the unenviable choice of either pulling back on growth-generating capital expenditure, or risking missing its fiscal targets.

Top 10 Vocabulary from the Editorial

1. Unenviable (adjective)
Meaning: Difficult or unpleasant in a way that makes one feel sympathy rather than envy.
Example: The government faces an unenviable choice between fiscal discipline and growth.

2. Fiscal Space (noun phrase)
Meaning: The ability of a government to increase spending or reduce taxes without harming fiscal sustainability.
Example: Limited fiscal space restricts the government’s ability to stimulate demand.

3. Bolster (verb)
Meaning: To support or strengthen something.
Example: Capital expenditure was increased to bolster economic growth.

4. Rejig (verb)
Meaning: To reorganise or make structural changes.
Example: The income-tax rejig aimed to increase disposable income.

5. Pare Down (phrasal verb)
Meaning: To reduce gradually by trimming excess.
Example: Households used tax savings to pare down existing debt.

6. Subdued (adjective)
Meaning: Reduced in intensity; kept under control.
Example: Revenue expenditure cannot remain subdued for long.

7. Valiantly (adverb)
Meaning: With determination and courage.
Example: The government valiantly attempted to raise revenue through higher cesses.

8. Pertinently (adverb)
Meaning: In a way that is relevant or appropriate to the matter at hand.
Example: Fiscal deficit ratios are pertinently linked to nominal GDP.

9. Pegged To (phrasal verb)
Meaning: Fixed or linked to a particular standard or indicator.
Example: The fiscal deficit is pegged to the size of GDP.

10.Optics (noun, informal)
Meaning: The way a situation is perceived by the public, rather than its actual reality.
Example: Missing fiscal targets may hurt the government’s economic optics.

RC Questions

Q1.

The author suggests that the expectation of an immediate rise in GST collections following rate reductions was unrealistic primarily because:

(a) GST rate cuts structurally weaken indirect tax buoyancy
(b) Consumers tend to prioritise savings and debt reduction in the short run
(c) Reduced rates lower tax compliance incentives
(d) Inflation-adjusted consumption always responds with a lag

Q2.

Which of the following best captures the author’s view on the relationship between wholesale inflation and fiscal indicators?

(a) Low wholesale inflation improves fiscal indicators by reducing expenditure pressure
(b) Wholesale inflation has no bearing on fiscal ratios once real GDP growth is strong
(c) Low wholesale inflation can worsen fiscal ratios by compressing nominal GDP
(d) Wholesale inflation directly determines the size of capital expenditure

Q3.

According to the passage, why does the government possess limited discretion over revenue expenditure?

(a) It is constitutionally protected and cannot be altered
(b) It is politically sensitive only during election years
(c) It consists largely of committed liabilities such as salaries and interest payments
(d) It is primarily funded through non-tax revenues

Q4.

Which of the following policy choices does the author describe as “unenviable” for the government?

(a) Increasing indirect taxes versus increasing direct taxes
(b) Expanding welfare expenditure versus raising defence spending
(c) Reducing revenue expenditure versus raising new cesses
(d) Curtailing capital expenditure versus missing fiscal targets

Q5.

Which one of the following can be inferred from the author’s assessment of recent fiscal measures?

(a) The government has abandoned fiscal consolidation entirely
(b) Capital expenditure growth has been achieved mainly through higher borrowing
(c) Short-term revenue stress coexists with medium-term growth strategy
(d) Revenue expenditure has been deliberately compressed to unsustainable levels

Q6.

The author’s reference to new excise duties and cesses on tobacco and pan masala primarily serves to:

(a) Criticise the government’s reliance on sin taxes
(b) Highlight the regressive nature of indirect taxation
(c) Emphasise the timing mismatch between policy action and fiscal relief
(d) Argue for higher health-related taxation

Q7.

Which of the following best describes the tone of the editorial?

(a) Alarmist and pessimistic
(b) Normative and prescriptive
(c) Analytical with cautious approval of fiscal discipline
(d) Ideological and reformist

Answer Key

1. (b)

2. (c)

3. (c)

4. (d)

5. (c)

6. (c)

7. (c)

Detailed Explanations

Q1 Explanation

The passage explicitly states that households are more likely to save or repay debt rather than immediately increase consumption after tax cuts.
✔ Hence, (b) is correct.
✘ The passage does not discuss compliance or structural GST weakness.

Q2 Explanation

Low wholesale inflation reduces nominal GDP, which mechanically inflates ratios like fiscal deficit-to-GDP, even if fiscal discipline is maintained.
✔ Correct answer: (c).

Q3 Explanation

Revenue expenditure includes salaries, pensions, and interest payments, which are committed obligations and hence inflexible.
✔ Correct answer: (c).

Q4 Explanation

The “unenviable choice” explicitly refers to choosing between:

• sustaining growth-generating capital expenditure, or
• missing fiscal targets
  ✔ Hence, (d).

Q5 Explanation

The author recognises short-term revenue stress due to tax cuts and low inflation, while also acknowledging a deliberate capex-led growth strategy.
✔ Correct inference: (c).

Q6 Explanation

The mention of new cesses taking effect from February 1 underlines that their benefits will accrue only in the next financial year, highlighting a timing lag.
✔ Correct answer: (c).

Q7 Explanation

The editorial appreciates fiscal discipline but analytically explains structural constraints without panic or moralising.
✔ Best description: (c) Analytical with cautious approval.