State economy, finance, rural credit and cooperatives

This chapter answers the economics block marked 'In Reference with C.G.' in Part 1 of Mains General Studies Paper III of the Chhattisgarh State Service Examination, and heading 5 (Economy, Forest and Agriculture) of the state part of Preliminary Paper I: the social backwardness of the SC, ST, OBC and minorities, literacy and occupational structure, women's empowerment, child labour, rural development, state finance and budget policy, share in central taxes, revenue and capital expenditure, public debt including external loans, institutional and non-institutional rural credit, and co-operatives. Budgets, GSDP and debt change every February, so the chapter teaches how the numbers are built and read, and gives every figure with its date and source. The one budget snapshot is the Budget for 2026-27 as analysed by PRS Legislative Research (presented 24 February 2026); demographic figures are from Census 2011.

1. How a state budget is built and read

The Governor causes the annual financial statement (the Budget) to be laid before the Vidhan Sabha under Article 202. All revenues, loans raised and loan recoveries of the state go into the Consolidated Fund of the State (Article 266(1)); no money leaves it without appropriation by law (Articles 203 and 204). The Contingency Fund (Article 267(2)) is a small imprest placed at the Governor's disposal for unforeseen needs, and the Public Account (Article 266(2)) holds money the state holds as banker, such as provident funds and deposits, which needs no appropriation. A vote on account (Article 206) lets the government spend for a few months before the Budget passes, and a supplementary demand (Article 205) covers a shortfall during the year.

TermMeaning
Revenue receiptsState's own tax and non-tax revenue plus share in central taxes plus grants
Revenue deficitRevenue expenditure minus revenue receipts
Fiscal deficitTotal expenditure minus revenue receipts and non-debt capital receipts: the net borrowing need
Primary deficitFiscal deficit minus interest payments
Capital outlaySpending that creates assets: roads, irrigation, buildings
⚠️ Exam trap
Do not confuse the columns. Actuals belong to a closed year, Revised Estimates (RE) correct the current year midway, and Budget Estimates (BE) are the plan for the coming year. A comparison of a BE with a previous RE is a plan-versus-expectation comparison, not a growth in actual spending.
ℹ️ Note
The older 'plan' and 'non-plan' expenditure split, which the syllabus still names, was dropped from Union budgeting from 2017-18; teach it as a concept (development outlay versus committed expenditure) and expect today's budgets to speak of revenue and capital expenditure instead.

2. A dated snapshot: the Budget for 2026-27

Chhattisgarh's Budget for 2026-27 was presented on 24 February 2026. According to PRS Legislative Research's analysis of it, the state projected GSDP at current prices of Rs 7,09,553 crore for 2026-27 and net expenditure (excluding repayment of debt) of Rs 1,72,000 crore, up about 10% on the 2025-26 revised estimate. Read the receipts side as a lesson in dependence on the Union.

Source: PRS Legislative Research, Chhattisgarh Budget Analysis 2026-27
Item (2026-27 BE)Rs crore
Own tax revenue52,000
Own non-tax revenue25,000
Share in central taxes51,000
Grants from the Centre15,000
Revenue expenditure1,45,000
Capital outlay (2025-26 RE: 16,300)26,500

The four receipts add to revenue receipts of Rs 1,43,000 crore, against revenue expenditure of Rs 1,45,000 crore: a revenue deficit of Rs 2,000 crore, 0.3% of GSDP. Central transfers (share in taxes plus grants) are Rs 66,000 crore, about 46% of revenue receipts, almost as large as the state's own tax and non-tax revenue together (Rs 77,000 crore). Capital outlay was budgeted to rise by about 63% while revenue expenditure rises about 4%: the Budget leans toward asset creation.

⚠️ Exam trap
Published summaries of the same Budget quoted different fiscal-deficit percentages (PRS gave 4.1% of GSDP). When a figure is contested, an examiner must give the source in the stem; as a student, quote the source with the figure and prefer the structure (what is high, what is rising) to a single decimal.

3. Money from the Union: taxes, Finance Commission and grants

A state's receipts rest on constitutional channels. Article 270 shares the divisible pool of Union taxes; the Finance Commission (Article 280, constituted by the President every fifth year) recommends the states' share and how it is split among them (horizontal devolution). Recommendations are not binding on Parliament. Article 275 provides statutory grants-in-aid, with special provision for tribal welfare in states with Scheduled Tribes, which matters for Chhattisgarh. Centrally sponsored schemes and loans for capital expenditure come on top. The Fifteenth Finance Commission (2021-26) fixed the states' share at 41%, and reports on the Sixteenth Finance Commission (2026-31) say it kept 41% while adding a new weight for a state's contribution to national GDP.

  • GST: the 101st Amendment (2016) inserted Article 246A (power to levy GST) and Article 279A (GST Council). The state's own tax revenue now chiefly means State GST plus state excise, stamps and registration, motor vehicles tax and electricity duty.
  • Minerals: the state earns royalty and District Mineral Foundation contributions from coal, iron ore and other minerals; these depend on prices and offtake, so they are volatile.
  • Forest produce: tendu leaf and other nationalised minor forest produce are traded through the state's co-operative federation, a revenue and a tribal-income channel at once.
🎯 Why it matters
Because a state shares most major taxes with the Union and cannot set the GST rate alone, a mineral-rich but low-income state like Chhattisgarh depends on transfers to fund social spending. The mechanism, not the percentage, is the examinable core: constitutional article, who recommends, how it is split.

4. Public debt, borrowing limits and external loans

Article 293 governs state borrowing. A state may borrow within India on the security of its Consolidated Fund, within limits its Legislature sets; it cannot borrow abroad on its own. If a loan from the Union is outstanding, the state needs the Union's consent to borrow further. This is why World Bank and other external loans reach a state through the Union: the Government of India contracts them and passes the money on as external assistance. A state's debt is therefore made of market loans (State Development Loans sold at RBI auctions), loans from the Centre, borrowings from NABARD and financial institutions, and liabilities in the Public Account.

Discipline comes from the state's own Fiscal Responsibility and Budget Management Act (2005), framed after the Twelfth Finance Commission, which aimed at eliminating the revenue deficit and holding the fiscal deficit near 3% of GSDP. Chhattisgarh was for years a revenue-surplus state, a legacy of its formation with mineral revenue and a modest establishment. The picture has since moved: according to PRS Legislative Research, the 2026-27 Budget Estimates show a revenue deficit and put outstanding liabilities at 21.4% of GSDP at the end of 2026-27, up from 21% in the 2025-26 revised estimate. PRS also notes that the Sixteenth Finance Commission recommended a 3% fiscal-deficit limit for 2026-31.

🧠 Memory trick
Debt ladder for answers: who lends (market, Centre, NABARD, Public Account), who permits (Article 293 and the Union), who limits (state FRBM Act and Finance Commission), what to watch (debt as % of GSDP, interest as a share of revenue receipts).

5. People, backwardness and work: the social base of the economy

Census of India 2011; the literacy rate is quoted as 70.28% (final) in most sources but 71.04% in some provisional reports, so state the source
Indicator (Census 2011)Chhattisgarh
Population2,55,45,198
Density per sq km189
Sex ratio (females per 1,000 males)991
Child sex ratio (0-6 years)969
Urban population share23.24%
Scheduled Tribes share30.62%
Scheduled Castes share12.82%

Social backwardness has a constitutional vocabulary. Scheduled Castes and Scheduled Tribes are those notified by the President under Articles 341 and 342; only Parliament can alter the lists. Backward classes rest on Articles 15(4), 15(5) and 16(4) and a Backward Classes Commission under Article 340; the 50% ceiling on reservation comes from the Supreme Court's Indra Sawhney (1992) decision. Minorities are protected by Articles 29 and 30. Chhattisgarh combines a high Scheduled Tribe share with a low urban share, so tribal development, forest rights and access to services are the core of its backwardness, not caste alone.

Occupational structure: the great mismatch is that agriculture and forest-based work employ the largest share of workers while contributing a smaller share of GSVA, whereas mining, power and services produce more value with fewer jobs. Rural development therefore leans on wage-employment and livelihood programmes: the rural wage-employment guarantee (MGNREGA, 2005, replaced by the Viksit Bharat G RAM G Act, 2025 which was notified to take effect from 1 July 2026), the rural housing mission and the National Rural Livelihood Mission, run in the state through the Panchayat and Rural Development Department.

Women and children. Article 243D reserves at least one-third of panchayat seats for women; Chhattisgarh raised this to 50% through a 2008 amendment of its Panchayat Raj law. The state's sex ratio of 991 is well above the national figure, but the child sex ratio of 969 shows the slide. On child labour, Article 24 bars employment of children below fourteen in factories, mines and hazardous work; the Child Labour (Prohibition and Regulation) Amendment Act, 2016 bans work by children below fourteen in all occupations (with narrow family and entertainment exceptions) and by adolescents of 14 to 18 in hazardous work, and Article 21A with the RTE Act, 2009 makes schooling the remedy.

6. Rural credit and co-operatives

Rural credit is institutional (co-operatives, commercial banks, Regional Rural Banks under the 1976 Act, refinanced by NABARD, set up in 1982 on the Shivaraman Committee's advice) or non-institutional (moneylenders, traders, landlords, relatives), which charges high interest and traps small farmers. The short-term co-operative credit structure is a three-tier ladder: village Primary Agricultural Credit Societies (PACS) at the base, District Central Co-operative Banks (DCCBs) in the middle and the State Co-operative (Apex) Bank at the top. The Kisan Credit Card (1998) gives revolving crop credit.

In Chhattisgarh the PACS are also the procurement agents: paddy is bought at the Minimum Support Price through co-operative societies and the state's marketing federation, and short-term crop loans have been offered at very low or zero interest through the co-operatives under state policy (terms change with the government; see the policy documents of the year). Forest-dwellers' income is organised through the Chhattisgarh State Minor Forest Produce (Trading and Development) Co-operative Federation, which handles collection and sale of tendu leaf, sal seed and other nationalised produce, while tribal areas also use multipurpose societies for credit and supplies.

The law. Co-operative societies are a State subject (Entry 32, List II). The 97th Amendment (2011) made forming co-operative societies a fundamental right (Article 19(1)(c)), added the Directive Principle in Article 43B and inserted Part IXB. In Union of India v. Rajendra N. Shah (July 2021) the Supreme Court held Part IXB invalid for want of ratification by half the State legislatures, so it now binds only multi-State co-operatives; the Article 19(1)(c) and 43B changes survive. The Union created a separate Ministry of Co-operation in July 2021.

⚠️ Exam trap
Do not say the Supreme Court struck down the 97th Amendment as a whole. Article 19(1)(c) and Article 43B stand; only Part IXB fell for State-law societies.

Key takeaways

  • A state budget is read through the Consolidated Fund, Contingency Fund and Public Account (Articles 266 and 267), and through Actuals, RE and BE; revenue deficit, fiscal deficit and primary deficit have fixed definitions.
  • In the Budget for 2026-27 (PRS analysis, presented 24 February 2026) central transfers were about 46% of revenue receipts and capital outlay was set to rise about 63%: the state depends on the Union and is tilting to asset creation.
  • Devolution runs through Articles 270, 275 and 280 and, for GST, Articles 246A and 279A; Finance Commission advice is not binding.
  • Article 293 lets a state borrow only within India and with Union consent when a Union loan is outstanding, so World Bank-type external loans reach states through the Union; the state FRBM Act (2005) sets the discipline.
  • Census 2011 shows a state with 30.62% Scheduled Tribes, 12.82% Scheduled Castes, 23.24% urban and a sex ratio of 991; its core development problem is tribal, forest-based and rural.
  • Rural credit climbs PACS, DCCB and the apex bank; co-operatives are a State subject, and the Supreme Court in 2021 kept the 97th Amendment's Articles 19(1)(c) and 43B but struck Part IXB for State-law societies.

Practice questions (17)

Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.

  1. Under which Article of the Constitution does the Governor cause the annual financial statement (the Budget) of a State to be laid before the Legislature?

    1. Article 112
    2. Article 266
    3. Article 202
    4. Article 267
    Show answer

    Answer: C — Article 202

    Article 202 requires the Governor to cause the annual financial statement to be laid before the House. Article 112 is the corresponding provision for the Union Budget, and Article 266 only defines the Consolidated Fund and Public Account, so it does not provide for laying the statement.

  2. All revenues received by a State Government, loans raised by it and repayments of loans made to it form which fund?

    1. Contingency Fund of the State
    2. Public Account of the State Government
    3. State Disaster Response Fund account
    4. Consolidated Fund of the State
    Show answer

    Answer: D — Consolidated Fund of the State

    Article 266(1) places these receipts in the Consolidated Fund of the State, from which money is drawn only by appropriation by law. The Contingency Fund is a small imprest for unforeseen needs, and the Public Account holds money the state keeps as banker, such as provident funds.

  3. Consider the following statements about the Finance Commission and devolution. P: The Finance Commission is constituted by the President under Article 280 at the expiration of every fifth year or earlier if the President thinks fit. Q: The sharing of the divisible pool of Union taxes with the States is provided for in Article 270. R: Article 275 provides for grants-in-aid from the Union to States in need. S: Recommendations of the Finance Commission are binding on Parliament. Which statements are correct?

    1. P, Q and R only
    2. P and S only
    3. Q, R and S only
    4. P, Q, R and S
    Show answer

    Answer: A — P, Q and R only

    P, Q and R state the constitutional scheme correctly. S is wrong: Finance Commission recommendations are advisory, and the Government places them before Parliament with an explanatory memorandum on action taken. A reader who takes S as true would also have to take the commission as a legislature.

  4. According to PRS Legislative Research's analysis of Chhattisgarh's Budget for 2026-27 (presented 24 February 2026), the Budget Estimates were: own tax revenue Rs 52,000 crore, own non-tax revenue Rs 25,000 crore, share in central taxes Rs 51,000 crore, grants from the Centre Rs 15,000 crore, and revenue expenditure Rs 1,45,000 crore. Consider: P: The revenue deficit is Rs 2,000 crore. Q: Central transfers (share in taxes plus grants) are less than half of revenue receipts. R: Own tax revenue exceeds the share in central taxes by Rs 1,000 crore. S: The state's own tax and non-tax revenue together is less than half of revenue receipts. Which statements are correct?

    1. P, Q and S only
    2. Q, R and S only
    3. P, R and S only
    4. P, Q and R only
    Show answer

    Answer: D — P, Q and R only

    Revenue receipts are 52,000 + 25,000 + 51,000 + 15,000 = 1,43,000, so the deficit against 1,45,000 is 2,000 (P). Transfers are 66,000, about 46% (Q), and 52,000 minus 51,000 is 1,000 (R). S fails because own revenue of 77,000 is about 54% of receipts, more than half.

  5. Which of the following is NOT a source of a State Government's own tax revenue?

    1. State GST
    2. Customs duty on imports
    3. Stamp duty and registration fees
    4. State excise duty on liquor
    Show answer

    Answer: B — Customs duty on imports

    Customs duty is a Union tax (Union List) levied at the border, and states receive only a share of divisible Union taxes. State GST, stamps and registration and state excise are the state's own taxes, so each of those is a state source and cannot be the answer.

  6. Match each term with its definition. P: Revenue deficit. Q: Fiscal deficit. R: Primary deficit. Definitions:
    (i) Fiscal deficit minus interest payments.
    (ii) Total expenditure minus revenue receipts and non-debt capital receipts.
    (iii) Revenue expenditure minus revenue receipts.
    Which pairing is correct?

    1. P-i, Q-ii, R-iii
    2. P-iii, Q-i, R-ii
    3. P-ii, Q-iii, R-i
    4. P-iii, Q-ii, R-i
    Show answer

    Answer: D — P-iii, Q-ii, R-i

    Revenue deficit compares revenue expenditure with revenue receipts (iii); fiscal deficit is the net borrowing requirement (ii); primary deficit strips interest out of it (i). The pairing that makes primary deficit the starting point and fiscal deficit its subtraction inverts the relationship.

  7. In a State Budget document, the column headed 'Revised Estimates' for a year means:

    1. the final audited spending of that year after the accounts close
    2. the corrected estimate of the current year, made partway through
    3. the proposed spending for the coming financial year, as planned
    4. the extra money sought through supplementary demands
    Show answer

    Answer: B — the corrected estimate of the current year, made partway through

    Revised Estimates correct the current year's budget with part-year experience. Actuals are the closed, audited figures, and Budget Estimates are the plan for the coming year; supplementary demands are voted separately under Article 205.

  8. Which statement about borrowing by a State under Article 293 of the Constitution is correct?

    1. A State may raise loans abroad directly if its Governor approves the terms first
    2. A State may borrow only from the Union and never from the open market at all
    3. A State may borrow within India against its Consolidated Fund, within limits its Legislature sets
    4. A State needs no Union consent even when a Union loan is still outstanding
    Show answer

    Answer: C — A State may borrow within India against its Consolidated Fund, within limits its Legislature sets

    Article 293(1) confines state borrowing to within India, against the Consolidated Fund and within limits set by state law. Article 293(3) requires Union consent while a Union loan is outstanding, which is why the statement that no consent is needed is wrong.

  9. A development project in a State is funded by a World Bank loan. In the Indian federal scheme the usual arrangement is that:

    1. the State signs the loan and the Union only guarantees repayment as the Governor directs
    2. the Government of India contracts the loan and passes the funds on to the State as aid
    3. the State's Public Account takes the loan directly from the Bank, outside the Consolidated Fund of the State
    4. the Finance Commission lends to the State on the World Bank's behalf directly
    Show answer

    Answer: B — the Government of India contracts the loan and passes the funds on to the State as aid

    Article 293 bars states from raising foreign loans themselves, so the Union is the borrower and routes the funds to the state as external assistance. The idea that the state signs it would contradict Article 293(1), and the Finance Commission advises on devolution but does not lend.

  10. In the short-term co-operative credit structure, which is the correct order from the village level upward?

    1. PACS, State Co-operative Bank, District Central Co-operative Bank
    2. District Central Co-operative Bank, PACS, State Co-operative Bank
    3. PACS, District Central Co-operative Bank, State Co-operative Bank
    4. State Co-operative Bank, PACS, District Central Co-operative Bank
    Show answer

    Answer: C — PACS, District Central Co-operative Bank, State Co-operative Bank

    The ladder runs from village Primary Agricultural Credit Societies to District Central Co-operative Banks and then the apex State Co-operative Bank. Putting the state bank between the two lower tiers breaks the three-tier logic.

  11. NABARD, the apex refinancing institution for agriculture and rural credit, was set up in 1982 on the recommendation of which committee?

    1. Shivaraman Committee
    2. Narasimham Committee
    3. Rangarajan Committee
    4. Gadgil Committee
    Show answer

    Answer: A — Shivaraman Committee

    NABARD was established in July 1982 on the advice of the Shivaraman Committee (CRAFICARD) to take over agricultural refinance from the RBI. The Narasimham name is tempting because a 1975 working group of that name led to the Regional Rural Banks, but it did not recommend NABARD.

  12. Consider the 97th Constitutional Amendment (2011) on co-operative societies. P: It made the right to form co-operative societies a fundamental right under Article 19(1)(c). Q: It added Article 43B, a Directive Principle on co-operative societies. R: In Union of India v. Rajendra N. Shah (July 2021) the Supreme Court held Part IXB invalid for State-law societies for want of ratification by half the State legislatures. S: The Supreme Court in that case also struck down the changes to Articles 19(1)(c) and 43B. Which statements are correct?

    1. P and Q only
    2. P, Q and R only
    3. Q, R and S only
    4. R and S only
    Show answer

    Answer: B — P, Q and R only

    P and Q describe what the Amendment inserted, and R is the holding on Part IXB. S is wrong: the Court left the Article 19(1)(c) and 43B changes standing, and Part IXB still applies to multi-State co-operatives.

  13. Which Article of the Constitution prohibits the employment of children below the age of fourteen years in any factory, mine or other hazardous employment?

    1. Article 21A
    2. Article 24
    3. Article 23
    4. Article 45
    Show answer

    Answer: B — Article 24

    Article 24 is the fundamental right against child labour in factories, mines and hazardous work. Article 21A gives the right to free education for ages 6 to 14, and Article 23 prohibits trafficking and forced labour, so each answers a different question.

  14. Article 243D reserves at least one-third of panchayat seats for women. Through an amendment of its Panchayat Raj law in 2008, Chhattisgarh raised the reservation for women in its panchayats to:

    1. 40 per cent
    2. 45 per cent
    3. 33 per cent
    4. 50 per cent
    Show answer

    Answer: D — 50 per cent

    Chhattisgarh raised the women's quota from the constitutional minimum of one-third to 50% through its 2008 amendment, as listed in a Rajya Sabha reply and the Panchayati Raj Ministry's compilation. The 33% figure is the Article 243D minimum, not the state's level.

  15. Consider the following. P: Scheduled Tribes are specified for a State by a Presidential order under Article 342. Q: After that order, only Parliament by law can include or exclude a community in the list. R: A State Legislature can amend the Scheduled Tribes list by a simple resolution. S: The Governor notifies the list on his own authority. Which statements are correct?

    1. P and Q only
    2. Q and R only
    3. P and S only
    4. R and S only
    Show answer

    Answer: A — P and Q only

    Article 342 empowers the President (after consulting the Governor) to specify the tribes, and the second clause leaves any change to Parliament by law. R and S fail: neither a State Legislature nor the Governor has that power, which is why additions for a state must pass through Parliament.

  16. According to PRS Legislative Research, Chhattisgarh's Budget for 2026-27 puts capital outlay at Rs 26,500 crore against Rs 16,300 crore in the 2025-26 revised estimate, and revenue expenditure at Rs 1,45,000 crore against Rs 1,39,500 crore. Which inference is best supported?

    1. Capital outlay is rising by about 63 per cent while revenue expenditure rises by about 4 per cent, so the Budget leans toward asset creation
    2. Capital outlay is rising by about 6 per cent while revenue expenditure rises by about 40 per cent, so the Budget leans toward consumption
    3. Both heads rise by about the same percentage, so the composition of spending is entirely unchanged from last year
    4. Capital outlay falls while revenue expenditure rises, so the revenue deficit must widen sharply this year and next
    Show answer

    Answer: A — Capital outlay is rising by about 63 per cent while revenue expenditure rises by about 4 per cent, so the Budget leans toward asset creation

    26,500 over 16,300 is about 1.63 (up 63%), and 1,45,000 over 1,39,500 is about 1.04 (up 4%), so asset-creating spending grows far faster. The reverse reading swaps the percentages, and a falling capital outlay contradicts the figures given.

  17. Which Article, inserted by the 101st Constitutional Amendment (2016), gives Parliament and State Legislatures concurrent power to make laws on Goods and Services Tax?

    1. Article 279A
    2. Article 246A
    3. Article 268
    4. Article 270
    Show answer

    Answer: B — Article 246A

    Article 246A gives both levels the power to make laws on GST. Article 279A creates the GST Council, which is tempting because it was inserted by the same Amendment, and Article 270 is the older provision for sharing the divisible pool.