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ERUDITION IAS Learning Simplified

GS ECONOMY
OBJECTIVE QUESTIONS & SHORT NOTES

Specially designed for UPSC Prelims 2015

by
VIVEK SINGH (IIT+MBA)
____________________________________________________________________________
Office Address: A 10-11, Mezzanine Floor, Bhandari House
(Near Chawla Restaurant) Mukherjee Nagar, Delhi – 110009
Mob: 9899449709, 9953037963

This material is also available @ www.eruditionias.com


ERUDITION IAS
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Learning Simplified

GS-Economy
by

VIVEK SINGH (IIT + MBA)

Highlights of the Course


 Covers Economic Development of GS Paper - III
 Complete coverage of all the topics for pre & mains
 Regular batches (morning & evening) commencing every month
 30 Sessions of 2½ hours each
 Weekly tests, discussions & feedback
 Personal attention and interaction with the students about their performance in the class

NOTE:
This material is an attempt to help the students practice questions of economy for prelims 2015.
Towards the end it contains a brief note on some significant developments related to current
economy. This is not an exhaustive note as my main focus is to cater to the demand of the
students who really needed quality questions.

The discussion of these questions will be conducted every Sunday starting from 21st
June 2015 (10.00 am – 1.00 pm).

Any update regarding this material will be uploaded on our website (www.eruditionias.com).
1. Recently RBI adopted a new (c) Both (i) & (ii)
Monetary Policy framework called (d) Neither (i) nor (ii)
“Inflation Targeting”. Under this new
framework: 3. The term „Crowd-in‟ has recently
been in the news in the economy in
(i) Controlling prices will be a which of the following context?
priority for RBI above the other
monetary policy objectives (i) Targeted government spending
(ii) RBI will be having only one acts as an engine of growth in
objective of controlling the prices the short run
(iii) There will be a preset and (ii) Government spending
publicly displayed target for the complements the private
annual rate of inflation investment
(iv) RBI will be accountable and will (iii) Government spending boosts
have to explain to the demand for goods which in turn
government the causes and increases private demand
steps it intends to take and within (iv) Government spending
what timeframe if it misses the substitutes the private
inflation target investment

Select the correct answer using the Select the correct answer using the
code given below: code given below:

(a) (i) only (a) (i) & (ii) only


(b) (ii) only (b) (i) & (iii) only
(c) (i), (iii) & (iv) only (c) (i), (ii) & (iii) only
(d) (ii), (iii) & (iv) only (d) All of the above

2. Consider the following statements 4. “Tax Buoyancy” in the economy is


regarding purchasing power parity defined as:
(PPP) exchange rates:
(i) Ratio of percentage change in
(i) If two countries have zero rate of tax revenue to percentage
inflation, their PPP exchange change in GDP
rates will be constant (ii) Ratio of change in tax revenue to
(ii) The prices of goods will be same change in GDP
in all the countries when (iii) Percentage increase in tax
converted at PPP exchange rate revenues as measured from
previous year
Select the correct answer using the (iv) Incremental change in tax
code given below: revenues required to increase
the GDP by one percent
(a) (i) only
(b) (ii) only

1
Select the correct answer using the (iii) It can be tackled through
code given below: expansionary monetary policy
(iv) It can be tackled through
(a) (i) only expansionary fiscal policy
(b) (i) & (ii) only
(c) (iii) only Select the correct answer using the
(d) (ii) & (iv) only code given below:

5. If a country is experiencing (a) (i) only


recession, then which of the (b) (ii) only
following shall be true: (c) (i), (iii) & (iv) only
(d) (ii), (iii) & (iv) only
(a) Decrease in real GDP
(b) Decrease in nominal GDP 8. Reserve money of the commercial
(c) Decrease in rate of growth of banks include which of the following:
GDP
(d) All of the above (i) Deposits of Public
(ii) Government securities held by
6. The Macroeconomic Vulnerability banks
Index (MVI) of a country is (iii) Cash held by banks in their
constructed by adding together vaults
which of the following: (iv) Money deposited with RBI

(i) Fiscal Deficit Select the correct answer using the


(ii) Current Account Deficit code given below:
(iii) External Debt
(iv) Inflation (a) (ii) & (iii) only
(b) (ii), (iii) & (iv) only
Select the correct answer using the (c) (iv) only
code given below: (d) All of the above

(a) (i), (iii) & (iv) only 9. Consider the following statements:
(b) (i), (ii) & (iv) only
(c) (ii) & (iii) only (i) Repo Rate, Reverse Repo Rate,
(d) All of the above Bank Rate & MSF rate move in
the same direction
7. Consider the following statements (ii) Sterilization is a Market
regarding an economy facing cyclical Stabilization Scheme
unemployment: (iii) Sterilization is a day to day
phenomenon
(i) It may lead to inflation in the (iv) Open Market Operations take
economy place in secondary market
(ii) It may lead to deflation in the
economy

2
Select the correct answer using the 12. In case the Union Budget is not
code given below: approved by 1st April, then which of
the following options is most
(a) (i) & (ii) only appropriate:
(b) (i) & (iv) only
(c) (ii) & (iv) only (a) The Constitution empowers Lok
(d) (i), (ii), (iv) only Sabha to grant a “Vote-on-
Account”
10. Foreign Direct Investment (FDI) in (b) The government can still
India can happen by which of the withdraw money from the
following ways: “Consolidated Fund of India”
(c) An Interim Budget needs to be
(i) Subsidiary passed
(ii) Joint Venture (d) The government can take
(iii) Acquisition of shares internal and/or external debt to
(iv) Purchase of government meet its fund requirement
securities
13. If a country‟s economy is
Select the correct answer using the experiencing positive real growth
code given below: rate, then which of the statements
may be likely true:
(a) (i) & (ii) only
(b) (ii) & (iii) only (i) Money needs to be pumped in
(c) (i), (ii) & (iii) only the economy to keep the
(d) All of the above deflation away
(ii) Money needs to be sucked from
11. Consider the following statements: the economy to keep the inflation
away
(i) Money can be created by
Fractional Reserve Banking Select the correct answer using the
(ii) Money Supply and Monetary code given below:
Base are two alternative terms
used for the same purpose (a) (i) only
(b) (ii) only
Select the correct answer using the (c) Both (i) & (ii)
code given below: (d) Neither (i) nor (ii)

(a) (i) only 14. Which of the following exchange rate


(b) (ii) only system is being followed in India?
(c) Both (i) & (ii)
(d) Neither (i) nor (ii) (a) Fixed Exchange Rate with gold
standard
(b) Fixed but adjustable
(c) Managed/ Dirt Float

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(d) Floating Exchange Rate
(i) Issue of Passport and Visa
15. Consider the following statements (ii) Registration of Companies
regarding securities: (iii) Royalty from on shore oilfields
(iv) Royalty from offshore oilfields
(i) All bonds are debt securities
(ii) All debt securities are bonds Select the correct answer using the
(iii) Shares/Stocks are securities code given below:
(iv) Savings and Fixed deposits are
securities (a) (i) only
(b) (i), (ii) & (iii) only
Select the correct answer using the (c) (i), (ii) & (iv) only
code given below: (d) All of the above

(a) (i) & (iii) only 18. Consider the following statements
(b) (ii) & (iii) only regarding “5/25 scheme” introduced
(c) (iii) & (iv) only in the FY 2014-15.
(d) (i) & (iv) only
(i) Applicable to infrastructure and
16. Consider the following statements core sector
regarding Foreign Direct Investment (ii) Helpful for long gestation
(FDI): projects
(iii) It is a refinancing scheme
(i) FDI investment may happen (iv) It has been introduced by RBI
through secondary market
(ii) FDI investment is possible Select the correct answer using the
through both primary & code given below:
secondary market
(iii) FDI investment is about equity (a) (i) only
securities (b) (i) & (ii)
(iv) FDI investment is about debt (c) (i), (iii) & (iv)
securities (d) All of the above

Select the correct answer using the 19. How many times RBI reviews the
code given below: Monetary Policy in a Financial Year?

(a) (i) only (a) Quarterly


(b) (ii) & (iii) only (b) Quarterly and Mid Quarterly
(c) (iii) only (c) Bimonthly
(d) (ii) & (iv) only (d) Six Monthly

17. Which of the following are Non Tax 20. Consider the following statements
Receipts of the Central regarding Value Added Tax (VAT):
Government?

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(i) VAT is consumption based tax (b) (ii) only
(ii) VAT is destination based tax (c) (i) & (ii) both
(d) Neither (i) nor (ii)
Select the correct answer using the
code given below: 23. Consider the following statements
regarding “Inverted Duty Structure”:
(a) (i) only
(b) (ii) only (i) It makes domestic manufactured
(c) Both (i) & (ii) goods uncompetitive against
(d) Neither (i) nor (ii) finished product imports in the
domestic market.
21. If an economy is in “Liquidity Trap”, (ii) Finished goods are taxed at
then which of the following higher rate than the raw
statements will be true: materials
(iii) Raw materials are taxed at
(i) The interest rate in the market higher rate than the finished
will be very low/zero products
(ii) People and businesses both will (iv) The duty in the “Inverted Duty
hold on to their cash and don‟t Structure” is Customs Duty
spend
(iii) People will be willing to buy Select the correct answer using the
bonds code given below:
(iv) Cash holdings of banks will rise
(a) (i) & (ii) only
Select the correct answer using the (b) (i) & (iii) only
code given below: (c) (i) & (iv) only
(d) (i), (iii) & (iv) only
(a) (i) only
(b) (i) & (ii) only 24. Consider the following statements
(c) (i), (ii) & (iv) only regarding Foreign Institutional
(d) (i) & (iv) only Investor (FII):

22. Consider the following statements: (i) FII is mainly into primary market
(ii) FII investment may happen
(i) Insurance penetration is through primary market
measured as the percentage of (iii) FII investment happens only in
insurance premium to GDP equity shares
(ii) Insurance density is measured as (iv) FII investment happens only in
the ratio of premium to total debt securities
population

Select the correct answer using the Select the correct answer using the
code given below: code given below:

(a) (i) only (a) (i) only

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(b) (ii) only (ii) Regional Rural Banks
(c) (ii) & (iii) only (iii) State Cooperative Banks & Land
(d) None of the above Development Banks
(iv) Non Banking Financial
25. Consider the following statements Companies
regarding Goods and Services Tax
(GST): Select the correct answer using the
code given below:
(i) GST is a value added tax
(a) (ii) only
(ii) GST is a multipoint destination
(b) (ii) & (iii) only
based tax
(c) (i), (ii) & (iii) only
(d) All of the above
Select the correct answer using the
code given below:
28. Consider the following statements
regarding presentation of Budget in
(a) (i) only
the Parliament:
(b) (ii) only
(c) Both (i) & (ii)
(i) Finance Bill is introduced on the
(d) Neither (i) nor (ii)
very first day when the Finance
Minister presents Budget in the
26. A Country has floating (flexible) Parliament
exchange rate system. Consider the (ii) Appropriation Bill is introduced
following statements: after the voting on demand for
grants is over
(i) Rise in interest rate in the
country may lead to Select the correct answer using the
appreciation of its currency code given below:
(ii) Inflation in the country may lead
to depreciation of its currency (a) (i) only
(b) (ii) only
Select the correct answer using the (c) Both (i) & (ii)
code given below: (d) Neither (i) nor (ii)

(a) (i) only 29. Consider the following statements


(b) (ii) only regarding Central Sales Tax (CST)
(c) Both (i) & (ii)
(d) Neither (i) nor (ii) (i) It is an origin based tax
(ii) It is levied by the Centre
27. NABARD provides refinance to (iii) It is administered by the Centre
which of the following types of (iv) It is administered by the State
financial institutions:
Select the correct answer using the
(i) Commercial Banks code given below:

6
(b) (i)-4, (ii)-2, (iii)-3, (iv)-1
(a) (i) & (ii) only (c) (i)-2, (ii)-3, (iii)-1, (iv)-2
(b) (i) & (iv) only (d) (i)-4, (ii)-3, (iii)-1, (iv)-2
(c) (i), (ii) & (iv) only
(d) (ii) & (iv) only 32. Which of the following factors may
lead to increase in savings in the
30. The goals of India‟s Central Bank‟s economy?
Monetary Policy are:
(i) Positive real interest rate
(i) Price stability (ii) Low inflation rate
(ii) Economic growth (iii) Rise in per capita income
(iii) Financial & currency stability (iv) Growth of financial
(iv) Employment growth intermediaries

Select the correct answer using the Select the correct answer using the
code given below: code given below:

(a) (i) & (ii) only (a) (iii) only


(b) (ii) & (iii) only (b) (iii) & (iv) only
(c) (i) & (iii) only (c) (ii) & (iii) only
(d) All of the above (d) All of the above

31. Consider the following indices and 33. Consider the following statements
their publishers and match the regarding Incremental Capital Output
columns: Ratio (ICOR):

Index (i) It shows how efficiently capital is


(i) Ease of doing business Index being used to produce output
(ii) Human Development Index (ii) It is the extra unit of capital
(iii) Global Hunger Index required to produce one
(iv) Gini Index additional unit of output
(iii) It is the extra unit of output
Publisher produced from one additional
1. International Food Policy unit of capital
Research Institute (iv) It is the ratio of change in capital
2. World Bank to change in output
3. United Nations Development
Programme Select the correct answer using the
4. International Monetary Fund code given below:

Select the correct answer using the (a) (i) only


code given below: (b) (i) & (ii) only
(c) (i), (ii) & (iv) only
(a) (i)-2, (ii)-3, (iii)-1, (iv)-4 (d) (i), (iii) & (iv) only

7
(b) The tax rate will be same for the
34. Consider the statements regarding Centre and State
the various inflation indices (c) The tax rate at which Central and
published in the country: States revenues will be same
(d) All of the above
(i) Wholesale Price Index (WPI)
does not represent the inflation in 37. The Multidimensional Poverty Index
services (MPI) identifies multiple deprivations
(ii) Consumer Price Index (CPI) at the household and individual level
represents the inflation in in the following areas :
services also
(iii) CPI and WPI represent the (i) Standard of living
inflation of imported components (ii) Education
also (iii) Health
(iv) GDP deflator captures the (iv) Housing
inflation of the goods and
services produced domestically
Select the correct answer using the
Select the correct answer using the code given below:
code given below:
(a) (i) only
(a) (i) & (ii) only (b) (i), (ii), (iii) only
(b) (i), (ii), (iii) only (c) (ii), (iii),(iv) only
(c) (ii), (iii),(iv) only (d) All of the above
(d) All of the above
38. Which of the following statements is
35. The unemployment caused due to correct?
the workers living far from the
regions and are unable to move (a) An overvalued currency will
where jobs are available is an boost exports from the country
example of: (b) An undervalued currency will
boost exports from the country
(a) Cyclical unemployment (c) Overvaluation/ undervaluation of
(b) Frictional unemployment currency does not impact exports
(c) Structural unemployment (d) None of the above
(d) Disguised unemployment
39. The decrease in dependency ratio
36. What does “Revenue Neutral Tax (ratio of dependent population to
Rate” means in reference to the working age population) of a country
Goods and Services Tax (GST)? may lead to which of the following
situation:
(a) The rate at which tax revenues
for States and Centre will remain (i) Increase in savings rate
the same as before GST (ii) Decrease in savings rate
(iii) Increase in Capital Formation

8
(iv) Decrease in Capital Formation 42. Consider the following statements
regarding the “Kisan Vikas Patra”
Select the correct answer using the reintroduced by the government in
code given below: 2014
(a) (i) & (iii) only
(b) (ii) & (iv) only (i) It is a savings scheme
(c) (i) & (iv) only (ii) Only farmers can purchase
(d) (ii) & (iii) only (iii) Revenue mobilized will be used
for welfare schemes for farmers
40. Consider the following statements
regarding Payment Banks: Select the correct answer using the
code given below:
(i) They accept Demand Deposits
(ii) They accept Time Deposits (a) (i) only
(b) (i) & (ii) only
(iii) They can lend
(iv) They cannot lend (c) (i) & (iii) only
(d) All of the above
Select the correct answer using the
code given below: 43. The visit of foreigners in India to see
the various places/events in the
(a) (i) & (ii) only country, amounts to which of the
(b) (i) & (iii) only following in terms of economy:
(c) (iii) only
(a) Production
(d) (i) & (iv) only
(b) Consumption
41. Consider the following statements (c) Import
(d) Export
(i) Currencies and coins are fiat
44. Which of the following is not part of
money
(ii) Currencies do not have intrinsic money supply in the economy?
value but coins have
(iii) Currencies and coins are legal (i) Money lying with the government
tenders (ii) Deposits of commercial banks
(iv) Cheques are legal tenders with other commercial banks
(iii) Money lying with the Central
Select the correct answer using the bank
code given below: (iv) Deposits of pubic with
commercial banks
(a) (i) only
(b) (i) & (iii) only Select the correct answer using the
(c) (iii) & (iv) only code given below:
(d) (ii), (iii) & (iv) only
(a) (i) only
(b) (ii) only

9
(c) (i) & (ii) only (iii) To allow state governments to
(d) (i), (ii) & (iii) only impose taxes on services
(iv) To allow central government to
45. How would the September 2014 tax the sale of goods at all
floods in Jammu and Kashmir impact stages beyond the factory gate
India‟s Gross Domestic Product
(GDP) for the FY 2014-15? Select the correct answer using the
code given below:
(a) It will increase the GDP
(b) It will decrease the GDP (a) (i) & (iii) only
(c) It will not have any impact on (b) (ii), (iii) & (iv) only
GDP (c) (ii) & (iv) only
(d) It may increase or decrease the (d) (iii) & (iv) only
GDP
48. Match the following indices with their
46. RBI is keeping the policy rate at a publishers:
higher level for quite some time.
Which of the following conditions Index
have led to such behavior? (i) WPI
(ii) CPI combined
(i) Inflation in the economy is high (iii) GDP Deflator
(ii) Inflation expectation in the (iv) CPI-Industrial Workers
economy is high
Published by
Select the correct answer using the 1. Labour Bureau
code given below: 2. Office of Economic Advisor
3. CSO
(a) (i) only
(b) (ii) only Select the correct answer using the
(c) Both (i) & (ii) code given below:
(d) Neither (i) nor (ii)
(a) (i)-2, (ii)- 3, (iii)–3, (iv)-1
47. The 122nd Constitutional Amendment (b) (i)-1, (ii)- 1, (iii)-2, (iv) -1
Bill needs to be passed for (c) (i)-1, (ii)-3, (iii)-3, (iv)-2
implementation of Goods and (d) (i)-1, (ii)-2, (iii)-3, (iv)-3
Services Tax (GST) for the following
reasons: 49. The unemployment caused due to
the workers lacking the requisite job
(i) To allow central government to skills is an example of:
impose taxes on inter-state sale
of goods (a) Cyclical
(ii) To allow central government to (b) Structural
impose taxes on sale of intra (c) Frictional
state goods (d) Disguised

10
172 and 182 respectively. Consider
50. With respect to the Goods and the following statements:
Services Tax (GST) Council,
consider the following statements: (i) Average increase in wholesale
prices from May 13 to May 14 is
(i) It will have constitutional backing 10%
(ii) It will decide on all the (ii) Average increase in wholesale
operational aspects of the GST prices from base year to May 14
is 82%
Select the correct answer using the (iii) Average increase in wholesale
code given below: prices from May 13 to May 14 is
less than 10%
(a) (i) only (iv) Average increase in wholesale
(b) (ii) only prices from May 13 to May 14 is
(c) Both (i) & (ii) more than 10%
(d) Neither (i) nor (ii)
Select the correct answer using the
51. The Real Rate of Interest is equal to code given below:
the Nominal Interest Rate minus
inflation. Consider the following (a) (i) & (ii) only
statements: (b) (ii) & (iii) only
(c) (ii) & (iv) only
(i) Real Interest Rate must be (d) None of the above
positive to encourage savings
and reduce consumption 53. The money accruing from the sale
(ii) Real Interest Rate must be of “Savings Certificates” goes to
positive to reduce savings and which account of the Government of
encourage consumption India?
(iii) Nominal interest rate in the
market may be negative (a) Consolidated Fund of India
(iv) Inflation rate in the market may (b) Public Debt
be negative (c) Public Account of India
(d) Contingency Fund of India
Select the correct answer using the
code given below: 54. Reduction in Statutory Liquidity Ratio
(SLR) will help achieve the banks
(a) (i) only which of the following prudential
(b) (iii) only norms:
(c) (i) & (iii) only
(d) (i) & (iv) only (i) Capital Adequacy Ratio
(ii) Provisioning against NPAs
52. The WPI index (base year 2004-05 =
100) for May 2013 & May 2014 are Select the correct answer using the
code given below:

11
(a) (i) only (a) (i) & (iii) only
(b) (ii) only (b) (ii) & (iii) only
(c) Both (i) & (ii) (c) (ii) & (iv) only
(d) Neither (i) nor (ii) (d) (iii) & (iv) only

55. Interest rate in the economy is 57. Consider the following statements
decreasing, consider the following regarding „Soil Health Card‟ Scheme
statements : launched recently:

(i) It will help in capital appreciation (i) It aims to provide soil health card
of banks holding Statutory to every farmer in the next three
Liquidity Ratio (SLR) securities years
(ii) It will help banks in (ii) Central government will provide
recapitalization assistance to state governments
(iii) It will help banks achieve BASEL for setting up Soil Testing
norms Laboratories for issuing soil
health cards to farmers
Select the correct answer using the (iii) Soil Testing will be done once in
code given below: every three years

(a) (i) only Select the correct answer using the


(b) (iii) only code given below:
(c) (i) & (iii) only
(d) All of the above (a) (i) & (ii) only
(b) (i) & (iii) only
56. Consider the following statements (c) (ii) & (iii) only
regarding the Nutrient Based (d) All of the above
Subsidy Scheme which became
effective from 1st April 2010. 58. When the central government is not
able to meet the targets as
(i) It is applicable for N, P & K mentioned in Fiscal Responsibility
fertilizers and Budget Management (FRBM)
(ii) Applicable for only P & K Act 2003 then it introduces
fertilizers amendments in the Act by
(iii) The prices of fertilizers under introducing a bill in the parliament.
nutrient based scheme are This bill is:
regulated by the government
(iv) Subsidy is given on the actual (a) FRBM Amendment Bill
weight of the nutrients in the (b) Appropriation Bill
fertilizer (c) Finance Bill
(d) No such amendment is required
Select the correct answer using the
code given below:

12
59. Recently the government introduced
a new series for estimation of GDP 62. During the period of “Forbearance”
for which the base year is: followed by RBI:

(a) 2010-11 (i) The liquidity with banks


(b) 2011-12 decreases
(c) 2012-13 (ii) Provisioning against NPAs/
(d) 2013-14 restructured loans decreases
(iii) Lending cost for banks increases
60. Consider the following statements (iv) It affects the debtors and not the
regarding Base Rate: creditors

(i) It is the minimum rate below Select the correct answer using the
which banks cannot lend code given below:
(ii) It is decided by the RBI
(iii) It is decided by the respective (a) (i) & (ii) only
banks (b) (ii) only
(iv) It is same for all the banks (c) (i), (ii) & (iii) only
(d) All of the above
Select the correct answer using the
code given below: 63. As per the revised methodology of
CSO, economic growth is measured
(a) (i), (ii) & (iv) only by GDP at:
(b) (i) & (iii) only
(c) (i), (iii) & (iv) only (a) Constant market prices
(d) (ii) & (iv) only (b) Current market prices
(c) Factor Cost at constant prices
61. Which of the following sectors have (d) Factor Cost at market prices
been recently/ newly added in the
definition of “Priority Sector Lending” 64. If a factory is running at peak
by RBI? production with certain number of
labourers then the marginal
(i) Medium Enterprises productivity of labour will be:
(ii) Social Infrastructure
(iii) Renewable Energy (a) Positive
(iv) Rural Infrastructure (b) Negative
(c) Zero
Select the correct answer using the (d) One
code given below:
65. RBI is using which of the following
(a) (i) & (ii) only inflation indices as anchors for
(b) (ii) & (iii) only “Inflation Targeting”:
(c) (i), (ii) & (iii) only
(d) All of the above only (a) WPI

13
(b) GDP Deflator Select the correct answer using the
(c) CPI combined code given below:
(d) CPI-Industrial Workers
(a) (i) only
66. The decrease in Cash Reserve Ratio (b) (ii) only
(CRR) requirement by RBI will (c) Both (i) & (ii)
impact the Base Rate of banks in (d) Neither (i) nor (ii)
which of the following manner:

(a) It may lead to increase in Base 69. The competitiveness of a country‟s


Rate exports can be best known by which
(b) It may lead to decrease in Base of the following exchange rates:
Rate
(c) It may lead to increase or (a) Nominal Exchange Rate
decrease in Base Rate (b) Real Exchange Rate
(d) It will have no impact on Base (c) Nominal Effective Exchange
Rate Rate
(d) Real Effective Exchange Rate
67. Which of the following are part of
India‟s External Debt? 70. Which of the following investors/
agencies can purchase government
(i) External Commercial Borrowing of India securities?
(ECB)
(ii) NRI Deposits (i) Reserve Bank of India
(iii) Investments made by Portfolio (ii) Portfolio Investors
Investors in debt securities (iii) Financial Institutions
(iv) Portfolio Investors purchasing (iv) Individuals
government securities
Select the correct answer using the
Select the correct answer using the code given below:
code given below:
(a) (i) only
(a) (i) only (b) (i) & (iii) only
(b) (iv) only (c) (iii) only
(c) (i), (iii) & (iv) only (d) All of the above
(d) All of the above
71. Consider the following statements:
68. Money can be created in the economy
in which of the following ways: (i) Higher Repo Rate may lead to
higher Bank Rate
(i) Fractional reserve banking (ii) Higher Bank Rate leads to higher
(ii) Full reserve banking Repo Rate

14
(iii) Banks are bound to pass on the 74. Consider the following statements
Repo Rate cut benefits to regarding payment banks:
customers by reducing the Base
Rate (i) They will accept current and
savings deposits
Select the correct answer using the (ii) They may act as Business
code given below: Correspondents for other banks
(iii) They will be set up as
(a) (i) only differentiated banks
(b) (ii) only (iv) They will provide payments /
(c) (i) & (ii) only remittance services to migrant
(d) (i) & (iii) only labour workforce, low income
households and small
72. Rural Infrastructure Development businesses
Fund (RIDF) is a fund under which of
the following institutions: Select the correct answer using the
code given below:
(a) Rural Electricity Corporation
Limited (a) (i) only
(b) India Infrastructure Finance (b) (i) & (ii) only
Company Limited (c) (ii) & (iii) only
(c) NABARD (d) All of the above
(d) Regional Rural Banks (RRBs)
75. In the 2015-16 budget, Union
73. Fiscal Deficit is equal to: government has eased the fiscal
deficit roadmap and will achieve the
(i) Total expenditure minus total target of 3% by 31st March 2018.
receipts This additional government
(ii) Total expenditure minus total expenditure is meant for:
receipts except borrowing
(iii) Revenue deficit plus capital (a) Financing of revenue deficit
expenditure minus non debt (b) Giving boost to the core sectors
creating capital receipts of economy
(iv) Total borrowing (c) Agriculture sector
(d) Social sector schemes
Select the correct answer using the
code given below: 76. Consider the following statements
regarding “Small Banks”:
(a) (i) & (iv) only
(b) (ii) & (iii) only (i) They will promote savings from
(c) (ii), (iii) & (iv) only unserved sections of the
(d) All of the above population
(ii) They will supply credit to small
business units, small farmers,

15
micro and small industries and (iii) It prohibits RBI from subscribing
unorganized sector to primary issues of central
(iii) They will be subject to prudential government securities
norms (iv) It ensures transparency in fiscal
(iv) They shall comply with the operations
priority sector lending target
Select the correct answer using the
Select the correct answer using the code given below:
code given below:
(a) (i) only
(a) (i) only (b) (ii) & (iii) only
(b) (ii) & (iv) (c) (ii), (iii) & (iv) only
(c) (i), (iii) & (iv) (d) All of the above
(d) All of the above
80. Who has been appointed as the first
77. If a country is experiencing inflation President of BRICS bank?
then what must decrease:
(a) K V Kamath
(a) Wage level (b) Arun Shourie
(b) The output of goods and services (c) Yashwant Sinha
(c) The amount of money needed to (d) Bimal Jalan
purchase a given quantity of
goods and services 81. Which of the following rates is used
(d) Purchasing Power by RBI as the penal rate in case
banks are not meeting their reserve
78. The names „Shishu‟, „Kishor‟ and requirements?
„Tarun‟ are related to which of the
following recently launched (a) Bank Rate
government scheme: (b) Discount Rate
(c) Marginal Standing Facility Rate
(a) MUDRA Bank (d) Weighted Average of Retail and
(b) Payment Bank Wholesale inflation
(c) Rural Infrastructure Development
Fund 82. Consider the following statements:
(d) Soil Health Cards
(i) Net Factor Income from Abroad
79. Consider the following statements include export receipts
regarding FRBM Act 2003 (ii) Old Age Pension is not included
in the estimation of National
(i) It is applicable to Centre and Income
State both (iii) Retirement Pension is included
(ii) It prohibits government in the estimation of National
borrowing from RBI Income

16
(iv) Indirect taxes and subsidies are (ii) National Housing Bank (NHB)
not included in national income (iii) Small Industries Development
Bank of India (SIDBI)
Select the correct answer using the (iv) NABARD
code given below:
Select the correct answer using the
(a) (ii), (iii) & (iv) only code given below:
(b) (i), (ii) & (iii) only
(c) (i) only (a) (i) & (ii) only
(d) All of the above (b) (i) & (iii) only
(c) (i), (ii) & (iii) only
83. Central government declares the (d) None of the above
price at which sugarcane should be
purchased from the farmers by the 86. High Powered Money includes of
mill owners. This price is called: which of the following:

(a) Central Issue Price (CIP) (i) Money injected in the economy
(b) Fair and Remunerative Price by the Monetary Authority
(FRP) (ii) Currency and coins held by
(c) Minimum Support Price (MSP) public
(d) Central Regulated Price (CRP)
Select the correct answer using the
84. Regional Rural Banks (RRBs) code given below:
receive funds from which of the
following entities: (a) (i) only
(b) (ii) only
(i) Central Government (c) Both (i) & (ii)
(ii) Respective State Governments (d) Neither (i) nor (ii)
(iii) Sponsoring Banks
(iv) NABARD 87. Unemployment rate is defined as:

Select the correct answer using the (a) Number of people not in job as a
code given below: ratio of total population
(b) Number of people not in job as a
(a) (ii) & (iii) only ratio of labour force
(b) (ii) & (iv) only (c) Number of people not in job but
(c) (iv) only actively looking for job as a ratio
(d) All of the above of labour force
(d) Number of people not in job but
85. Which of the following institutions actively looking for job as a ratio
offers direct credit at the household of total population
or project level?
88. Consider the following statements:
(i) EXIM Bank

17
(i) Base Year prices are used to
calculate the real GDP Select the correct answer using the
(ii) Base Year prices are used to code given below:
calculate the nominal GDP
(a) (i) & (ii) only
Select the correct answer using the (b) (iii) & (iv) only
code given below: (c) All of the above
(d) None of the above
(a) (i) only
(b) (ii) only 91. The National Income of a country
(c) Both (i) & (ii) (India) is equal to which of the
(d) Neither (i) nor (ii) following:

89. Consider the following statements (a) Gross National Product (GNP)
regarding bonds: (b) Net National Product at Market
Prices
(i) Bond prices depend on market (c) Net National Product at Factor
interest rate Cost
(ii) Bond prices depend on rate of (d) The income going to the
inflation household sector
(iii) Bond prices depend on the
profits of the companies issuing 92. Consider the following statements
the bonds regarding Open Market Operations:
(iv) Bond prices are decided by the
market regulator (i) It is conducted by Commercial
Banks
Select the correct answer using the (ii) It is conducted by RBI
code given below: (iii) It is about debt securities
(iv) It is about equity securities
(a) (i) only
(b) (i) & (ii) only Select the correct answer using the
(c) (i), (ii) & (iv) only code given below:
(d) All of the above
(a) (ii) only
90. Which of the following constitute (b) (ii) & (iii) only
Capital Account in Balance of (c) (ii), (iii) & (iv) only
Payment (BoP)? (d) All of the above

(i) Global Depository Receipts 93. The rise in prices of goods and
(ii) Trade Credit services in an economy may be
(iii) Government securities caused due to:
purchased by foreign Investors
(iv) Securities purchased by foreign (i) Increase in circulation of the
portfolio investors printed currency notes

18
(ii) Increase in Demand Deposits
(iii) Increase in Time Deposits Select the correct answer using the
(iv) Increase in Post Office savings code given below:
deposits
(a) (ii) only
Select the correct answer using the (b) (ii) & (iii) only
code given below: (c) (i), (ii), (iii) only
(d) All of the above
(a) (i) only
(b) (i) & (ii) only 96. That part of the National Income
(c) (ii), (iii) & (iv) only which is received by the households
(d) All of the above is called:

94. Capital formation in a country will (a) Personal Income


necessarily lead to which of the (b) Personal Disposable Income
following: (c) Net National Product at Factor
Cost
(i) Increase in ICOR (d) None of these
(ii) Decrease in ICOR
(iii) Economic growth 97. Consider the following statements
regarding the “Soil Health Card”
Select the correct answer using the scheme launched recently
code given below:
(i) It will give information about the
(a) (i) & (iii) only quality and fertility status of the
(b) (ii) & (iii) only soil
(c) (iii) only (ii) It will help choose the right
(d) None of the above fertilizers in the right combination
(iii) It will carry crop wise
recommendations of nutrients/
95. Consider the following statements fertilizers required for the farm
regarding the “Price Stabilization (iv) It will promote balanced
Fund” launched recently under fertilization leading to improved
Ministry of Agriculture: soil health

(i) It will promote direct purchase of Select the correct answer using the
produce from farmers code given below:
(ii) It will maintain a strategic buffer
stock (a) (i) only
(iii) It will protect consumers by (b) (i), (ii) & (iv) only
supplying commodities at (c) (ii), (iii) & (iv) only
reasonable prices (d) All of the above
(iv) It is a kind of market intervention
scheme

19
98. Consider the following statements (b) (ii) & (iii) only
regarding Money Multiplier: (c) (i), (ii) & (iii) only
(d) All of the above
(i) It increases with increase in
reserve requirements of banks 101. Consider the following statements
(ii) It decreases with increase in for a closed economy:
reserve requirements of banks
(iii) It increases with Monetary Base (i) Higher tax collection may lead
(iv) It decreases with Monetary Base to higher investment
expenditure by government
Select the correct answer using the (ii) Higher tax collection may lead
code given below: to higher consumption
expenditure by government
(a) (i) & (ii) only (iii) Higher savings will lead to
(b) (ii) only higher investment
(c) (ii) & (iii) only
(d) (ii) & (iv) only Select the correct answer using the
code given below:
99. The Tenth Ministerial Conference of
WTO scheduled for December 2015 (a) (i) & (iii) only
is supposed to be held in: (b) (ii) & (iii) only
(c) (iii) only
(a) Nairobi (d) All of the above
(b) Delhi
(c) Shanghai 102. „Stagflation‟ is a phenomenon which
(d) Buenos Aires can occur if the economy is
experiencing the following situations:
100. Consider the following statements
in an economy: (i) Demand Pull inflation
(ii) Supply shock inflation
(i) Decrease in consumption
expenditure may lead to increase Select the correct answer using the
in capital accumulation code given below:
(ii) Increase in savings may lead to
increase in capital accumulation (a) (i) only
(iii) Increase in savings leads to (b) (ii) only
future economic growth (c) Both (i) & (ii)
(iv) Forgone present consumption (d) Neither (i) nor (ii)
leads to increased future
consumption 103. The National Census is conducted
by which of the following offices/
Select the correct answer using the agencies:
code given below:

(a) (ii) only (a) Central Statistical Office (CSO)

20
(b) National Sample Survey Office (i) Shall be provided by the
(NSSO) government
(c) Registrar General and Census (ii) Cannot be provided through
Commissioner market mechanism
(d) Census Bureau of India (iii) Not possible to exclude anyone
from using these goods
104. Which of the following are (iv) A person can enjoy the benefits
characteristic situation for „Bank of these goods without reducing
Run‟? their availability to others

(i) Banks are in risk of becoming Select the correct answer using the
insolvent code given below:
(ii) Customers withdraw their
deposits fearing that banks will (a) (i) only
run out of reserves (b) (iii) & (iv) only
(iii) Central Bank acts as lender of (c) (ii), (iii) & (iv) only
last resort (d) All of the above
(iv) It arises due to fractional reserve
banking 107. Consider the following statements
regarding the Budget prepared by
Select the correct answer using the Government of India:
code given below:
(i) It shall be divided into two parts
(a) (i) & (ii) only i.e. receipts budget and
(b) (iii) & (iv) only expenditure budget
(c) (ii), (iii), (iv) only (ii) It shall be divided into two parts
(d) All of the above revenue budget and capital
budget
105. The Grants-in-aid given by the (iii) It is government‟s discretion to
Central Government to the State divide it any way
Governments and local bodies for (iv) There is a Constitutional
creation of capital assets are specification regarding the
classified in the Union budget division of the budget
under?
Select the correct answer using the
(a) Revenue expenditure code given below:
(b) Capital Expenditure
(c) Both Revenue and Capital (a) (i) & (iii) only
expenditure (b) (ii) & (iii) only
(d) None of the above (c) (ii) & (iv) only
(d) (i) & (iv) only
106. Which of the following are
characteristics of „Public Goods‟: 108. Consider the following statements:

21
(i) Repo Rate and Reverse Repo 111. Consider the following statements
Rate are linked to each other regarding Goods and Services Tax
(ii) Repo Rate and Bank Rate are (GST):
independent of each other
(iii) Bank Rate is called the „Policy (i) Taxes need to be paid at each
Rate‟ point in the value chain
(iv) Repo Rate and Reverse Repo (ii) It will have input tax credit
Rate come under liquidity mechanism
adjustment facility (iii) Taxes will be paid on the value
added by any entity
Select the correct answer using the (iv) The total taxes will be passed
code given below: on to the consumers

(a) (i) & (iv) only Select the correct answer using the
(b) (ii) & (iv) only code given below:
(c) (i), (ii) & (iii) only
(d) (iv) only (a) (i) & (iii) only
(b) (i), (ii) & (iii) only
109. To reduce the rate of inflation, the (c) (iii) & (iv) only
Government should: (d) All of the above

(a) Increase public expenditure 112. Which of the following figures are
(b) Encourage consumer presented as part of the Budget
expenditure presentation in Parliament?
(c) Increase Income tax
(d) Reduce Interest Rate (i) Budgeted receipts and
expenses for the next Financial
110. Consider the following statements Year (FY)
regarding the government‟s fiscal (ii) Budgeted receipts and
deficit: expenses for the current FY
(iii) Revised receipts and expenses
(i) It may be inflationary of the current FY
(ii) It may not be inflationary (iv) Actual receipts and expenses
(iii) It raises aggregate demand for the last FY

Select the correct answer using the Select the correct answer using the
code given below: code given below:

(a) (i) only (a) (i) only


(b) (ii) only (b) (i) & (ii) only
(c) (i) & (iii) only (c) (i), (ii), & (iii) only
(d) All of the above (d) All of the above

22
113. Which of the following statements (iv) Hyperinflation
will be considered as part of
„Transfer Payments‟ in balance of Select the correct answer using the
payment? code given below:

(i) Money sent by an NRI to his (a) (ii) only


friend in India (b) (i) & (ii) only
(ii) Money sent by an Indian (c) (ii) & (iii) only
employee who has gone abroad (d) All of the above
temporarily
116. Which of the following are part of
Select the correct answer using the Monetary Base of an economy:
code given below:
(i) Currency notes and coins with
(a) (i) only the public
(b) (ii) only (ii) Vault cash of commercial banks
(c) Both (i) & (ii) (iii) Deposits of commercial banks
(d) Neither (i) nor (ii) with RBI
(iv) Deposits of Government of India
114. The Current Account Deficit in with RBI
Balance of Payment can be financed
through: Select the correct answer using the
code given below:
(i) Net capital inflow
(ii) Foreign exchange reserve (a) (i) only
transaction (b) (i) & (ii) only
(iii) Fiscal surplus (c) (iii) & (iv) only
(iv) Borrowing from external sources (d) All of the above

Select the correct answer using the 117. Consider the following statements
code given below: regarding Gross Domestic Product
(GDP):
(a) (i) only
(b) (ii) & (iv) only (i) It is the value added by all the
(c) (i) & (ii) only firms in the economy
(d) All of the above (ii) It is the final value of goods and
services produced in the economy
115. Which of the following scenarios (iii) It is the sum of final consumption
can support sustainable economic and investment expenditure and
growth: net of exports and imports
(iv) It is the income received by all the
(i) Deflation factors of production
(ii) Low and moderate inflation
(iii) Galloping inflation

23
Select the correct answer using the
code given below: (i) Buyers and sellers act
independently
(a) (i) & (ii) only (ii) Buyers and sellers act in their own
(b) (i), (ii) & (iii) only self interest
(c) (i), (ii) & (iv) only (iii) They are at fair market price
(d) All of the above (iv) Generally the transactions between
companies and their associates are
118. Which agency will be acting as the at arm‟s length
Fund Manager for the recently
launched “Price Stabilization Fund” for Select the correct answer using the
Perishable Agri-horticulture produce? code given below:

(a) (i) & (ii) only


(a) National Agricultural Co-operative (b) (iii) only
Marketing Federation of India
(c) (i), (ii) & (iii) only
(NAFED) (d) (i), (ii) & (iv) only
(b) Small Farmers Agri-Business
Consortium (SFAC) 121. The term „Crowd-out‟ in economy is
(c) Food Corporation of India (FCI) related to which of the following:
(d) National Consumer Cooperative
Federation of India (NCCF) (i) Increased public sector spending
replaces private sector spending
119. Consider the following (ii) Governments deficit spending
statements:
through borrowed money increases
interest rates
(i) Foreign Portfolio investments are (iii) Government spending uses up
more volatile than FDI financial resources that would
(ii) FDI investors can easily sell their otherwise be used by private firms
holdings and quit the market
(iv) Government providing a service or
(iii) Foreign Portfolio investment is good that would otherwise be a
sector specific business opportunity for private
(iv) FDI investment in general target industry
the capital market
Select the correct answer using the code
Select the correct answer using the given below:
code given below:
(a) (i) only
(a) (i) only (b) (i) & (ii) only
(b) (i) & (iii) only (c) (ii) & (iii) only
(c) (iii) & (iv) only (d) All of the above
(d) (iv) only
122. With respect to the Budget of the Central
120. Consider the following statements Government, Capital Receipts are those
regarding “arms length transactions”: receipts which:

24
Select the correct answer using the
(i) Create a liability for the government code given below:
(ii) Causes reduction in assets of the
government (a) (i) only
(b) (ii) only
Select the correct answer using the (c) Both (i) and (ii)
code given below: (d) Neither (i) nor (ii)

(a) (i) only 125. Consider the following statements:


(b) (ii) only
(c) Both (i) & (ii) (i) Capital Account convertibility is
(d) Either (i) or (ii) related to the government‟s Capital
Budget
123. Consider the following statements (ii) India has full capital account
regarding „Fiscal Consolidation‟ policy: convertibility
(iii) Current Account convertibility is
(i) It is a conscious effort by the related to governments current year
government to bring down fiscal domestic transactions
deficit (iv) India has partial current account
(ii) It is a conscious effort to reduce convertibility
public debt
(iii) It would raise revenues and bring Select the correct answer using the
down wasteful expenses code given below:
(iv) It is a long term rather than short
term road map for fiscal reform (a) (i) & (iii) only
(b) (i), (ii) & (iii) only
Select the correct answer using the (c) (i), (iii) & (iv) only
code given below: (d) None of the above

(a) (i) & (ii) only 126. Consider the following statements
(b) (i) & (iii) only regarding „Open Market Operations‟
(c) (i), (iii) & (iv) only
(d) All of the above (i) It results in an increase or
decrease in Monetary Base
124. With respect to the “Pradhan Mantri (ii) It results in an increase or
Jan Dhan Yojana”, consider the decrease of Money Supply
following statements: (iii) It is managed by RBI but
securities are bought and sold by
(i) It will increase savings and commercial banks
investment in the economy (iv) Securities are bought and sold
(ii) It will increase growth in the by RBI
economy
Select the correct answer using the
code given below:

25
profit, were able to reduce their
(a) (ii) & (iii) only taxable income
(b) (ii) & (iv) only
(c) (i), (ii) & (iv) only Select the correct answer using the
(d) All of the above code given below:

127. The amount of Money Supply in the (a) (i) & (ii) only
economy affects the following (b) (i) & (iii) only
macroeconomic variables: (c) (iv) only
(d) (i), (ii) & (iii) only
(a) Rate of Interest
(b) Price level 130. Which of the following are
(c) Output components of India‟s Foreign
(d) All of the above Exchange Reserves?

128. Consider the following statements: (i) SDR: Special Drawing Rights
(ii) FCA: Foreign Currency Assets
(i) High output leads to high (iii) RTP: Reserve Tranche Position
unemployment (iv) Gold
(ii) High unemployment leads to
high inflation Select the correct answer using the
code given below:
Select the correct answer using the
code given below: (a) (ii) only
(b) (ii) & (iv) only
(a) (i) only (c) (i), (ii) & (iv) only
(b) (ii) only (d) All of the above
(c) Both (i) & (ii)
(d) Neither (i) nor (ii) 131. If a country has „Pegged‟ its
exchange rate, then consider the
129. Consider the following statements following statements
regarding Minimum Alternate Tax
(MAT) in India: (i) Inflation in the country may make
its exports less competitive
(i) Applicable to companies and (ii) If the country devalues its
individuals both currency in proportion to the
(ii) MAT will be included in GST inflation experienced then its
once implemented exports may remain competitive
(iii) The companies are required to
pay both MAT and Corporate Select the correct answer using the
Income Tax code given below:
(iv) It was introduced as companies,
in spite of having high book (a) (i) only
(b) (ii) only

26
(c) Both (i) & (ii) (d) All of the above
(d) Neither (i) nor (ii)
134. Which of the following taxes are
132. Consider the following statements regressive in nature?
regarding “Natural Monopoly”:
(i) Income Tax
(i) There is only one supplier (ii) Sales Tax
(ii) Start-up capital costs is huge and (iii) Goods & Services Tax (GST)
acts as deterrent for possible (iv) Value Added Tax (VAT)
competitors
(iii) Societies benefit as multiple Select the correct answer using the
firms operating in such an code given below:
industry is economically
inefficient (a) (i) only
(iv) Generally governments regulate (b) (ii) only
such business (c) (i) & (ii) only
(d) (ii), (iii) & (iv) only
Select the correct answer using the
code given below: 135. Consider the following statements
regarding Goods and Services Tax
(a) (i) only (GST):
(b) (i) & (ii) only
(c) (i) & (iii) only (i) It is levied at each point in the
(d) All of the above supply chain
(ii) It provides input tax credit
133. Which of the following statements mechanism
are correct about CPI rural, CPI (iii) It is a value added tax
urban and CPI combined index? (iv) It is a progressive tax

(i) The price data is collected by Select the correct answer using the
NSSO code given below:
(ii) The price data is published by
CSO (a) (i) & (iii) only
(iii) The base year is recently (b) (ii) & (iv) only
revised to 2011-12 (c) (i), (ii) & (iii) only
(iv) It is released for all India and for (d) All of the above
states and UTs separately
136. Consider the following statements
Select the correct answer using the regarding the present taxation
code given below: system in India

(a) (ii), (iii) & (iv) only (i) Service Tax is imposed by
(b) (i), (ii) & (iii) only Centre only
(c) (ii) & (iii) only

27
(ii) VAT is imposed by states/UTs (b) 75%
only (c) 100%
(d) 125%
Select the correct answer using the
code given below: 140. Consider the following statements
regarding Securitization and
(a) (i) only Reconstruction of Financial Assets
(b) (ii) only and Enforcement of Security Interest
(c) Both (i) & (ii) (SARFAESI) Act 2002:
(d) Neither (i) nor (ii)
(i) It allows only RBI to classify any
137. In which of the following situations asset as non performing
in the economy people may be (ii) It allows RBI or any other
willing to purchase bonds? authority or body as applicable
to classify any asset as non
(i) Inflation in the economy is performing
almost zero (iii) It allows the banks and financial
(ii) Economy is in liquidity trap institutions to sell the security in
(iii) RBI is following expansionary case of secured and unsecured
monetary policy debt
(iv) Inflation in the economy is high (iv) It allows the banks and financial
institutions to sell the security
Select the correct answer using the once it becomes non performing
code given below:
Select the correct answer using the
(a) (i) & (ii) only code given below:
(b) (iii) & (iv) only
(c) (iii) only (a) (i) & (iv) only
(d) (iv) only (b) (ii) & (iv) only
(c) (i), (iii) & (iv) only
138. In India, “Agriculture Year” is a (d) (ii), (iii) & (iv) only
period from:
141. Which of the following is not a
st st
(a) 1 January – 31 December parameter for horizontal distribution
(b) 1st April – 31st March of central tax proceeds within the
(c) 1st July – 30th June states as per the Fourteenth Finance
(d) 1st October – 30th September Commission report?

139. The Foreign Trade Policy of 2015- (a) Population & Demographic
20 aims to increase the exports of change
goods and services from India by the (b) Fiscal Discipline
following percentage: (c) Area & Forest Cover
(d) Income Distance
(a) 50%

28
142. Consider the following statements
regarding the mandate of NITI 144. Consider the following statements:
Aayog:
(i) Headline inflation measures price
(i) Evolve a shared vision of inflation of all types of goods and
national development priorities services
and strategies with the active (ii) Core inflation measures price
involvement of states inflation excluding food and
(ii) Foster competitive federalism energy items
with centre competing with states
and states competing with each Select the correct answer using the
other in pursuit of national code given below:
development
(iii) Decision making regarding policy (a) (i) only
and programme design on behalf (b) (ii) only
of central and state governments (c) Both (i) & (ii)
(iv) Facilitating the implementation of (d) Neither (i) nor (ii)
the national development agenda
145. A person has left his current job and
Select the correct answer using the is looking for another job. He/ she is
code given below: facing which type of unemployment:

(a) (i) only (a) Structural


(b) (i) & (iii) only (b) Cyclical
(c) (i), (ii) & (iv) only (c) Frictional
(d) All of the above (d) He/ she will not be considered as
unemployed
143. The Budget 2015-16 has allowed
companies to issue tax free 146. Which of the following agencies
infrastructure bonds for funding to conducts „inflation expectation
which of the following sectors: survey‟ of households in India?

(i) Road (a) Central Statistical Organization


(ii) Railway (b) National Sample Survey
(iii) Irrigation Organization
(iv) Power (c) Reserve Bank of India
(d) Ministry of Finance
Select the correct answer using the
code given below: 147. Consider the following statements
regarding the “Gold Monetization
(a) (i) & (ii) only Scheme” as proposed in the budget
(b) (ii) & (iv) only 2015-16:
(c) (i), (ii) & (iii) only
(d) All of the above

29
(i) It will help in mobilization of 149. Consider the following statements
gold held by households and regarding the recently launched
institutions MUDRA Bank:
(ii) It will give boost to the domestic
gems and jewellery sector (i) It will act as a regulator for
(iii) It will help in reducing import of Micro Finance Institutions
gold and Current Account Deficit (ii) It will provide direct lending to
(CAD) small entrepreneurs
(iv) Banks will be allowed to lend
this gold to jewellers Select the correct answer using the
code given below:
Select the correct answer using the
code given below: (a) (i) only
(b) (ii) only
(a) (i) & (iii) only (c) Both (i) & (ii)
(b) (i), (ii) & (iii) only (d) Neither (i) nor (ii)
(c) (ii) & (iv) only
(d) All of the above 150. Consider the following statements:

148. Consider the following statements (i) The price of bonds falls if the
regarding Cash Reserve Ratio lending rate in the market
(CRR) kept with RBI by commercial increases
banks: (ii) The price of bonds falls if the
deposit rate in the market
(i) It ensures safety to the increases
people‟s deposits in banks (iii) The price of bonds increases as
(ii) It ensures solvency of banks the inflation in the market
(iii) It increases the cost of funds decreases
for the banks (iv) The price of bonds decreases as
(iv) Banks earn interest on CRR the inflation in the market
decreases
Select the correct answer using the
code given below: Select the correct answer using the
code given below:
(a) (i) only
(b) (i) & (ii) only (a) (i) & (ii) only
(c) (i), (ii) & (iii) only (b) (ii) & (iii) only
(d) All of the above (c) (i), (ii) & (iii) only
(d) All of the above

30
ANSWER SHEET

QNo. ANS QNo. ANS QNo. ANS QNo. ANS QNo. ANS
1 C 31 C 61 C 91 C 121 D
2 C 32 D 62 B 92 B 122 D
3 C 33 C 63 A 93 D 123 D
4 A 34 D 64 C 94 C 124 C
5 A 35 C 65 C 95 D 125 D
6 B 36 A 66 B 96 A 126 C
7 D 37 B 67 D 97 D 127 D
8 B 38 B 68 A 98 B 128 D
9 D 39 A 69 D 99 A 129 C
10 C 40 D 70 D 100 D 130 D
11 A 41 B 71 A 101 D 131 C
12 A 42 C 72 C 102 B 132 D
13 A 43 D 73 C 103 C 133 D
14 C 44 D 74 D 104 D 134 D
15 A 45 A 75 B 105 A 135 C
16 C 46 C 76 D 106 D 136 C
17 C 47 B 77 D 107 C 137 D
18 D 48 A 78 A 108 A 138 C
19 C 49 B 79 C 109 C 139 C
20 C 50 C 80 A 110 D 140 B
21 C 51 D 81 A 111 D 141 B
22 C 52 B 82 A 112 D 142 C
23 D 53 C 83 B 113 A 143 C
24 B 54 C 84 D 114 C 144 C
25 C 55 D 85 B 115 A 145 C
26 C 56 C 86 C 116 D 146 C
27 D 57 D 87 C 117 D 147 D
28 C 58 C 88 A 118 B 148 C
29 C 59 B 89 B 119 A 149 A
30 D 60 B 90 C 120 C 150 C

31
ERUDITION IAS Learning Simplified

GS-Economy
by

VIVEK SINGH (IIT + MBA)

Highlights of the Course


 Covers Economic Development of GS Paper - III
 Complete coverage of all the topics for pre & mains
 Regular batches (morning & evening) commencing every month
 30 Sessions of 2½ hours each
 Weekly tests, discussions & feedback
 Personal attention and interaction with the students about their performance in
the class

Contact and Office Address:


A 10-11, Mezzanine Floor, Bhandari House
(Near Chawla Restaurant) Mukherjee Nagar, Delhi – 110009
Mob: 9899449709, 9953037963
www.eruditionias.com

32
GS-ECONOMY CURRENT EVENTS
RESERVE BANK OF INDIA (RBI)

1. Standard/ Restructured/ Non-Performing Assets


Loans and advances given by banks are „assets‟ for them (the loan document signed by the
borrower and kept with banks is an asset for bank as based on this loan document the bank
receives principal and interest back). Depending on the performance of such loans (i.e. whether
banks are receiving interest & principal or not) they are classified as per the norms provided by
RBI. The classification is aimed to bring transparency and consistency in the accounts.

Assets

Standard Non-Performing

Substandard Doubt Loss

There are different criteria for different types of loans (assets) for standard and non performing
classification, and no need to remember. But generally nonperforming assets (NPA) are those
assets for which interest and/or principal have remained overdue for a period of more than 90
days.

Difference between Refinancing and Restructuring: Refinancing may refer to the replacement of
an existing debt obligation with another debt obligation with changed terms and conditions like
repayment period, interest rate etc. Refinancing of a debt may be done to take advantage of a
better interest rate and a reduced monthly payment. But if the replacement of debt occurs
under financial distress/ difficulty, refinancing might be referred to as debt restructuring
(Corporate Debt Restructuring). In restructuring the promoter must put in additional equity
(owner‟s money) in the company.

Once a loan becomes NPA then it can be restructured (with certain conditions by lenders) and
after restructuring it becomes a „Standard Asset‟ (but is also tagged as „restructured standard’)

Banks need to make a provision of 15% on NPAs (i.e. this much of funds shall be kept aside for
the safety purpose in case these loans may not be recovered at all). Banks also need to
provision 15% on „restructured standard‟ assets but are sometimes given relaxation by RBI
which is called „forbearance‟.

33
2. SARFAESI Act 2002
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act
2002 (amended in 2004) allows the banks and financial institutions to seize the security (i.e.
collaterals for the loan) and sell it in case the loan/debt becomes non-performing (NPA) and if it
is secured (i.e. some collateral has been placed against it).

[Non Banking Financial Companies (NBFCs) were not covered under SARFAESI Act 2002 but
this year budget has proposed to include it under the Act]

Section 2 (1) (o) of the 2002 Act


Defines NPA as an asset or account of a borrower, which has been classified by a bank or
financial institution, as sub-standard, doubt or loss asset in accordance with the classification
guidelines issued by RBI.

Section 2 (1) (o) of the 2004 Act (after amendment)


Defines NPA as an asset or account of a borrower, which has been classified by a bank or
financial institution, as sub-standard, doubt or loss asset in accordance with the classification
guidelines issued by RBI or if the bank/ financial institution is administered or regulated by
any other authority then as per the classification guidelines issued by such authority.

Various creditors and borrowers had approached the High Courts against the amended
definition of NPA (Section 2 (1) (o)) and high courts had taken the view that the amended
definition suffers from excessive delegation of essential legislation and this definition creates
two classes of borrowers, one governed by RBI and one governed by guidelines issued by
different regulators/authorities.

But the Supreme Court in January 2015 upheld the amended definition of NPAs.

3. 5/25 Scheme
Generally infrastructure projects have a life of 25-30 years and are capital intensive (requiring
huge money) and of long gestation (the returns come after a long time). This scheme allows
banks to extend long-term loans of 20-25 years to infrastructure and core industries, while
refinancing them every five or seven years after the project has commenced commercial
operations. The banks can flexibly refinance (restructure) the existing and new long-term project
loans and it will not be considered as restructured asset (no provisioning of 15% is required)
which will help both the borrower as well as the lender.

34
4. Payment Banks
RBI released guidelines for licensing of payment banks in November 2014.The objectives of
setting up of payments banks is to promote financial inclusion by providing small savings
accounts and payments services to migrant labour workforce, low income households, small
businesses, other unorganized sector entities and other users.

The following will be the scope of activities for payment banks:

 Acceptance of demand deposits but no lending activity


 Issuance of ATM/debit cards but not credit cards
 Payments and remittance services through various channels
 Acting as Banking Correspondent (BC) of another bank
 Distribution of non-risk sharing simple financial products like mutual fund units and
insurance products, etc.

Payment banks will be required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity
Ratio (SLR). The total deposits of the public must be invested in government securities and/ or
deposited in other commercial banks (i.e. no lending is allowed). This makes the public deposit
in payment banks safe. Payment banks will be set up as differentiated (specialized/ specific)
banks for serving niche interests.

5. Small Finance Banks:


RBI released guidelines for licensing of small finance banks in November 2014.The objectives
of setting up of small finance banks are to promote financial inclusion by providing provision of
savings vehicles and supply of credit to small business units; small and marginal farmers; micro
and small industries; and other unorganized sector entities, through high technology-low cost
operations.

The scope of activities for small finance banks will be basic banking activities of acceptance of
deposits and lending to unserved and underserved sections including small business units,
small and marginal farmers, micro and small industries and unorganized sector entities and
there will not be any restriction in the area of operations. They will be required to maintain CRR
and SLR. They will also be set up as differentiated banks for serving niche interests.

35
MANUFACTURING & SERVICES

1. MUDRA Bank:
Micro Units Development Refinance Agency (MUDRA) Bank was launched by the Prime
Minister on 8th April 2015. Corpus of the bank will be Rs. 20,000 crore. The aim of the bank is
to fund the unfunded small entrepreneurs and to strengthen savings habit in the country.

Big industrial houses provide jobs to only 1.25 crore people, while small entrepreneurs
employ 12 crore people. There are about 5.77 crore small business units in India.

Roles and Responsibilities


 MUDRA Bank will act as a regulator for „Micro-Finance Institutions‟ (MFIs)

 It will lay down policy guidelines for micro enterprise financing business and registration
of MFI entities as well as their accreditation and rating

 MUDRA Bank would partner with state/regional level coordinators to provide finance to
“Last Mile Financiers” of small/micro business enterprises such as NBFCs, Cooperative
Societies, Small Banks, Commercial Banks, Regional Rural Banks

 It will be responsible for developing and refinancing all MFIs which are in the business of
lending to micro and small business entities engaged in manufacturing, trading and
service activities in rural and urban area

MUDRA Bank would also benefit small manufacturing units, shopkeepers, fruits and vegetable
sellers, hair salons, beauty parlours, truck operators, hawkers, artisans in rural and urban areas
with financing requirements up to Rs 10 lakh. MUDRA Bank will be targeted towards
mainstreaming young, educated or skilled workers and entrepreneurs including women
entrepreneurs.

Since the establishment of MUDRA Bank as an independent entity is likely to take some time, it
has been proposed to initiate the Bank as a unit of Small Industries Development Bank of India
(SIDBI) to benefit from SIDBI‟s initiatives and expertise.

2.Make in India:
A national programme designed to facilitate investment, foster innovation, enhance skill
development, protect intellectual property and build best-in-class manufacturing infrastructure.

The programme contains a vast number of proposals including easier norms and rules designed
to get both foreign and domestic investors to set up shop and make the country a manufacturing
hub. The programme lays emphasis on 25 sectors with focus on job creation and skill
enhancement.

36
The vision of the programme includes the following:
 Increasing the manufacturing sector growth to 12-14% per annum over the medium term
 Increase the share of manufacturing in the country‟s GDP from 16% to 25% by 2022
 To create 100 million additional jobs by 2022 in manufacturing sector
 Increasing domestic value addition and technological depth in manufacturing
 Creation of appropriate skills among rural migrants and urban poor for inclusive growth
 Enhancing the global competitiveness of the Indian manufacturing sector
 Ensuring sustainability of growth, particularly with regard to environment

3. Digital India:
The vision of Digital India aims to transform the country into a digitally empowered society and
knowledge economy and is centered on three key areas:
(i) (IT) infrastructure as a Utility to Every Citizen
(ii) Governance and Services on Demand and
(iii) Digital Empowerment of Citizens

The overall scope of this programme is:


 To prepare India for a knowledge future
 Being transformative that is to realize IT (Indian Talent) + IT (Information Technology) =
IT (India Tomorrow)
 Making technology central to enabling change.
 An Umbrella programme covering many ministries and departments

4. Skill India:
The vision for Skill India is - “To rapidly scale up skill development efforts in India, by creating an
end-to-end, outcome-focused implementation framework, which aligns, the demands of the
employers for a well-trained skilled workforce with the aspirations of Indian citizens for
sustainable livelihoods.”

Taking advantage of India‟s demographic dividend which consists of a majority of youth, Skill
India will scale up skilling with high speed and standards and will act as the main driver of skill
development for the nation‟s workforce. Thus, Skill India is focused on empowering the
country‟s youth by training them in skill sets of their choice which will enhance their
employability and create more job possibilities for them at national and global level.

The main objectives are as follows:


 Build training capacity especially in the unorganized sector
 Ensure long-term skill training opportunities
 Establish benchmarked standards and develop a network of quality instructors
 Leverage existing public infrastructure
 Facilitate overseas employment
 Create pathways for transitioning between vocational and general education
 Support weaker/disadvantaged sections of society
 Maintain a national database

37
To achieve its vision of a 'Skilled India', the Department of Skill Development and
Entrepreneurship was created on 31st July, 2014 which was later made into a full
fledged “Ministry of Skill Development and Entrepreneurship” on 9th Nov, 2014.

4. Foreign Trade Policy (FTP 2015-20):


The new five year Foreign Trade Policy (2015-20) unveiled on 1st April 2015 provides a
framework for increasing exports of goods and services as well as generation of employment
and increasing value addition in the country, in keeping with the “Make in India” vision. The
focus of the new policy is to support both the manufacturing and services sectors, with a special
emphasis on improving the „ease of doing business‟.

The policy aims to double the exports to $900 billion by 2019-20, from $466 billion in 2013-14
and raise India's share in world exports from 2% to 3.5%.

The following are important features of FTP 2015-20:

 The policy introduces two new schemes, namely “Merchandise Exports from India
Scheme (MEIS)” for export of specified goods to specified markets and “Services
Exports from India Scheme (SEIS)” for increasing exports of notified services. Duty
credit scrips are issued under MEIS and SEIS to promote the export of goods and
services. (When an exporter exports something, he is provided with “duty credit scrips”
and these scrips (paper money) he can use for payment of customs duty or excise duty
or service tax on other items)

 To give a boost to exports from Special Economic Zones (SEZ), the policy will extend
benefits of both the reward schemes (MEIS and SEIS) to units located in SEZs

 The policy will give higher level of rewards to products with high domestic content and
value addition, as compared to products with high import content and less value addition
(a boost for Make in India)

 The policy promotes paperless processing of reward schemes for which it has been
decided to develop an online procedure to upload digitally signed documents (a boost for
Trade facilitation and ease of doing business)

 Considering the strategic significance of small and medium scale enterprises in the
manufacturing sector and in employment generation, 108 „MSME clusters‟ have been
identified for focused interventions to boost exports. Accordingly, „Niryat Bandhu
Scheme‟ (for mentoring first generation entrepreneurs) has been transformed and
repositioned to achieve the objectives of „Skill India‟

 The policy gives higher level of support for export of defense, farm produce and eco-
friendly products

 The policy shall be aligned to “Make in India”, “Digital India” and “Skill India” initiatives

38
GOLD SCHEMES (as proposed in the budget)

Government has planned (in the Budget 2015-16) to introduce various gold deposit schemes in
a bid to curb imports of gold, which is a major contributor of Current Account Deficit (CAD) of
India (top consumer of gold).
India does not produce gold and imports around 1000 tonnes of it every year. Indians mainly
prefer to hold their gold in the form of ornaments and through these gold deposit schemes
government wants to put this gold into productive use.

1.Gold Monetization:
A customer (person or institution) can deposit gold in the specified bank or agency in their “Gold
Savings Account” in the form of jewellery or bullion and can earn interest (rate as decided by the
bank). The deposited gold will be lent by banks to jewelers at an interest rate little higher than
the interest rate paid to the customers. The customer will have the choice to take cash or gold
on redemption. It has been proposed that minimum quantity of deposit will be 30 gram of gold
and for a minimum period of one year.

The scheme will help in mobilization of gold held by household and institutions and will give
boost to the domestic gems and jewellery sector. It will also help in reducing import of gold and
CAD

Both principal and interest to be paid to the depositors of gold will be „valued‟ in gold. For
example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity
he has a credit of 101 gms. Interest earned will be exempt from income tax and capital gains
tax.

2.Gold Bonds:
A customer can purchase gold bonds which will carry a fixed rate of interest and be redeemable
in cash in terms of the face value of gold at the time of redemption (proposed in the budget, no
further progress) (explanation: suppose a person purchased gold bonds worth Rs. 100, and
suppose at that time market price of 1mg of gold is Rs. 100. Then whenever the person would
like to sell his gold bonds then he will be getting the market price of 1mg of gold at that time)

3. Gold Coin:
Indian gold coin will be developed carrying the image of “Ashok Chakra”. Such an Indian gold
coin will help reduce the demand for coins minted outside India and help recycle the gold
available in the country (proposed in the budget, no further progress)

39
AGRICULTURE
1. Rural Infrastructure Development Fund (RIDF):
This fund was set up under NABARD during the Budget 1995-96 with the sole objective
of giving low cost fund support to State government/ UTs and State government owned
corporations for quick completion of ongoing projects relating to broadly three categories
i.e., Agriculture and related sector, Social sector and Rural connectivity. A corpus of Rs.
25000 crore has been allocated for the budget 2015-16.

2. Soil Health Card:


The Prime Minister launched a nationwide „Soil Health Card‟ Scheme on 19th Feb 2015
from Suratgarh in Rajasthan.
 It plans to distribute 14 crore cards in the next 3 years to the farmers in the country
 Central government will provide assistance to state governments for setting up soil
testing labouratories for issuing soil health cards to farmers
 Soil testing will be done once in every three years
 It will give information about the quality and fertility status of the soil
 It will carry crop wise recommendations of nutrients/ fertilizers required for the farm
 It will help choose the right fertilizers in the right combination
 It will promote balanced fertilization leading to improved soil health

3. National Crop Insurance Programme (NCIP)/ Rashtriya Fasal Bima Karyakram


(RFBK):
NCIP is applicable throughout the country since Rabi 2013-14. This Central Sector
Scheme has been formulated by merging former three schemes of 11th Plan, namely
Pilot Modified National Agricultural Insurance Scheme (MNAIS), Pilot Weather Based
Crop Insurance Scheme (WBCIS) and Pilot Coconut Palm Insurance Scheme (CPIS).

NCIP has been introduced to provide financial support to the farmers for losses in their
crop yield, to help in maintaining flow of agricultural credit, to encourage farmers to
adopt progressive farming practices and higher technology in agriculture and thereby, to
help in maintaining production, employment & economic growth. Besides these, farmers
will also benefit due to: -

 The coverage of indemnity (protection) for prevented sowing/planting risk (i.e. if farmers
have not been able to sow the crops because of some reasons) and failure of the
notified crop as a result of natural calamities, pests diseases and post harvest losses
 Higher level of indemnity and advanced way for calculation of threshold yield
 Faster settlement of claims due to provision for making 50% advance of likely claims for
immediate relief to the farmers
 The premium is required to be paid by the farmers but the government will provide
subsidy up to maximum of 75% on a 50:50 basis by Centre and State

The “Unit area” of insurance is the village/ village panchayat level (i.e. the assessment of
damage will be at entire village level and not at a particular farm level for receiving the claims)

40
SOCIAL SECURITY/ INSURANCE SCHEMES

1. Pradhan Mantri Jeevan Jyoti Bima Yojana

 Life insurance scheme offering life insurance cover for death due to any reason
 This will be a one year scheme renewable every year
 The risk cover is Rs. 2 lakhs and premium is Rs. 330 per annum
 The person shall be in the age between 18 to 50 years and having a savings bank
account primarily linked with Aadhaar
 The cover will be for one year period stretching from 1st June to 31st May and for
joining the scheme, the auto debit consent for premium from the savings bank
account shall be given by 31st May
 A person can exit the scheme anytime and rejoin by paying the annual premium and
submitting a self declaration of good health

2. Pradhan Mantri Suraksha Bima Yojana

 Accident Insurance Scheme offering accidental death and disability cover for death
or disability on account of an accident
 This will be a one year scheme renewable every year
 The risk cover is Rs. 2 lakhs and premium is Rs. 12 per annum
 The person shall be in the age between 18 to 70 years and having a savings bank
account primarily linked with Aadhaar
 The cover will be for one year period stretching from 1st June to 31st May and for
joining the scheme, the auto debit consent for premium from the savings bank
account shall be given by 31st May
 A person can exit the scheme anytime and rejoin by paying the annual premium and
submitting a self declaration of good health

3. Atal Pension Yojana

 Fixed pension scheme, and will replace the existing Swavalamban Yojana
 The subscribers would receive fixed minimum pension of Rs. 1000 per month, Rs.
2000 per month, Rs. 3000 per month, Rs. 4000 per month, Rs. 5000 per month, at
the age of 60 years, depending on their monthly contributions through auto debit
 The minimum age of joining the scheme is 18 years and maximum age is 40 years.
 The Central Government would also co-contribute 50% of the total contribution or
Rs. 1000 per annum, whichever is lower, to each eligible subscriber account, for a
period of 5 years

41
NATIONAL INSTITUTION FOR TRANSFORMING INDIA (NITI) AAYOG

On 1st January 2015, NITI Aayog was constituted through a cabinet resolution, dissolving the
Planning Commission. The major functions of NITI Aayog will include:

 Evolve a shared vision of national development priorities and strategies with the active
involvement of states

 Provide a platform for cooperative federalism by enabling states to have active


participation in the formulation of national policy as well as achieving time-bound
implementation of qualitative and quantitative targets. This cooperative federalism will be
enhanced by competitive federalism with the centre competing with the states and vice
versa and the states competing with each other in the joint pursuit of national
development

 Restructure the planning process into a bottom-up model. Empowering states and
guiding them to further empower local governments in developing mechanisms to
formulate plans at the village level which will progressively be aggregated up to the
higher levels of government

 Acting as a think tank of the government, it will strategically chart out the future of the
nation

 Provide a platform for mutual resolution of inter-sectoral, inter-departmental, inter-state


as well as centre-state issues to bring about clarity and speed in execution

 Offer internal consultancy function to central and state governments on policy and
programme design. While it will make recommendations to the central and state
governments, the responsibility for taking and implementing the decisions will rest with
the centre and respective state governments

 Monitor the implementation of policies and programmes and evaluate their impact and
thus facilitate the implementation of the development agenda

 An accumulator as well as disseminator of research and best practices on good


governance through state-of-the-art resource centre

 Bringing in external ideas and expertise into government policies and programmes
through a collaborative community of national and international experts & practitioners

42
GOODS & SERVICES TAX (GST)

The government is planning to implement GST across the country by 1st April 2016. To
implement it, Constitutional amendment is required mainly because of the following two issues:

(i) Presently taxes on services is under Union List


(ii) And taxes on sale of goods within the states is under State List

After the coming of the GST, centre and states both will be required to levy taxes on goods and
services across India. [That means Centre will be levying taxes on sale of goods within the
states also and states will be levying taxes on services also.] And that‟s why we require
Constitutional amendment.

122nd Constitutional Amendment Bill 2014 has already been introduced in the Parliament (and
has been passed by Lok Sabha). It has proposed the following changes:

(i) The Parliament and the Legislature of every State (including UTs) have the
power to make laws with respect to goods and services tax imposed by Union or
State [Article 246 A (1)]

(ii) The President shall, by order, constitute a “Goods and Services Tax Council”
which will decide on all the operational aspects of the GST [Article 279 A]. In the
GST council:
 The Centre will have one third representation and the states and UTs will
have 2/3rd representation
 The decisions will require 75% majority
 The Union finance minister will have the veto power

Salient features of GST:


 The GST will subsume a number of indirect taxes of Union and State
governments
 It will remove cascading effect of taxes and provide for a common national
market for goods and services
 It is consumption, multi-point and destination based tax
 It is a value added tax

(All the above characteristics of GST can be understood fully through practical
examples in the class and may not be possible to explain through notes)

43
14th FINANCE COMMISSION (2015 – 2020)

Transfer of funds from Centre to States:


As per the Constitution, centre and states both have powers to impose taxes and both have
been assigned responsibilities. But Centre has more taxation powers than states as compared
to responsibilities assigned in the constitution. That is why transfer of funds is recommended
from Centre to States. This transfer is recommended by two agencies: Finance Commission (a
constitutional body) and Planning Commission (created by executive order but now dissolved).

1. Finance Commission (FC)

Centre States

2. Planning Commission (PC)

Taxes Taxes

1.The FC recommends transfers in two ways (these are called untied grants and the states can
spend in the way they want):
(i) As percentage share of central taxes (this is called vertical devolution and 14th FC
has increased the share of states in central taxes to 42% from 32% in 13th FC)
(ii) As Grants-in-Aid (also called non plan grants) in the form of (a) local body grants (b)
disaster management grants and (c) Revenue deficit grants

2.The transfers recommended by PC (classified as Planned expenditure in the budget) are


mainly in two ways (these are called tied grants and the states cannot spend this money in the
manner they want, as conditions are imposed by centre):
(i) Central Assistance to State government Annual Plans
(ii) Central Government Schemes and Centrally Sponsored Schemes (CSS)

The parameters for distribution of taxes as received from the centre among the states
(horizontal distribution) are Population (17.5%), Demographic Change (10%), Area (15%),
Forest Cover (7.5%) and Income Distance (50%).
In terms of collective transfer from centre to states, there has been a compositional rather than
a quantitative shift in the budget 2015-16. The increase in vertical devolution (of 42% from the
previous 32%) subsumes the various modes of central plan transfers that were made by the
centre to the states through planning commission in previous years. A major change is the
reduction of the Centre‟s discretionary powers in transferring funds (tied grants through PC) to
states under various modes. As the transfer through FC has increased to 42%, the Budget
2015-16 has announced delinking 8 CSS, changing the fund sharing pattern of 24 CSS and
continuing with the full support of Centre for 31 CSS.

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INFRASTRUCTURE (as proposed in the Budget)

 Corporatization of 12 major ports: The ports will be established as companies under the
Companies Act 2013 and this will make ports more result driven, efficient and profitable
(Out of the 13 major ports only Ennore Port (Kamarajar Port Ltd.) is corporate others are
trusts).

 Plug and Play mode for five 4000 MW ultra mega power projects: That means all
clearances will be given prior to bidding to private parties on Public Private Partnership
(PPP) model which will prevent projects from getting stalled for one clearance or
another. And government will consider similar plug and play mode for projects in other
infrastructure projects such as roads, railway, ports and airports.

 Revamping of PPP structure: Government will bear bigger share of risk, without
absorbing it entirely, making it easier for private players to invest.

 Tax-free bonds: Companies will be allowed to issue tax free infrastructure bonds for
roads, railway and irrigation projects and raise funds from small investors. Tax free
bonds means the interest income earned on the bonds by the investors will be tax free.

 National Investment and Infrastructure Fund (NIIF): This fund will raise debt and in turn
invest as equity in infrastructure finance companies such as Indian Railway Finance
Corporation (IRFC) and National Housing Bank (NHB). Corpus of the fund is Rs. 20,000
crore.

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BUDGET FACTS:

Major Statistics:

Year 2014-15 2015-16


GDP (nominal) 126 lakh crore 141 lakh crore

Projected Nominal Growth (from 2014-15 to 2015-16) 11.5%


Projected Real Growth (from 2014-15 to 2015-16) 8%

Budget (all figures in lakh crore)


Revenue Capital
Rev Expenditure Rev Receipts Capital Expenditure Capital Receipts
Plan Non Plan Tax Non Tax Plan Non Plan Loan Rec Borrow
3.30 12.06 9.20 2.22 1.35 1.06 0.79 5.56

Budgeted Expenditure = 17.77 lakh crore


Capital Expenditure = 2.41 lakh crore (1.7% of GDP)
Subsidy = 2.44 lakh crore (1.7% of GDP)

Fiscal Deficit = 3.9% (2015-16), 3.5% (2016-17), 3.0% (2017-18)


Revenue Deficit = 2.8% (2015-16)
Effective Rev Deficit = 2.0% (2015-16)
Primary Deficit = 0.7% (2015-16)

Subsidy:
Rs. Crore Food Fertilizer Fuel Others (interest) Total %of GDP
2014-15 1,23,000 71,000 60,000 10,000 2,67,000 2%
2015-16 1,24,000 73,000 30,000 15,000 2,44,000 1.7%

Direct & Indirect Taxes:


 Corporate Tax Rate to be cut from 30% to 25% by 2019

 The general rate of Central Excise Duty hiked to 12.5% from 12.3%

 Service Tax increased to 14% (with education cess subsumed) from 12.36%

 There is an enabling (the increased rate will come into force from a date to be notified
later) provision to levy a 2% Swachh Bharat Cess on all or certain taxable services to
promote government‟s campaign of cleanliness and hygiene.

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