Indian Economy: UPSC Previous Year Questions (Prelims)

Explanation

Assertion (A) is true: Economic globalism, which involves greater interconnectedness and interdependence of economies, does not necessarily mean that socialist ideology will decline. Socialism can continue to influence political and economic systems even as globalism takes hold, since socialism is more focused on social ownership and equality, not just the structure of the global economy. Reason (R) is true: While socialism supports principles of Universalism and equity, its role in globalism is not central. Economic globalism often focuses on capitalist principles rather than socialist ideals. Thus, Reason (R) is true but does not explain Assertion (A).

Explanation

A is correctly matched with 3: India exports a significant quantity of iron ore to Japan due to its high demand for raw materials in its steel industry. B is correctly matched with 1: Indian leather goods have a substantial market in Russia. The demand for quality leather products in Russia aligns with India’s export capabilities in this sector. C is correctly matched with 4: The United Kingdom has historically been a major importer of Indian tea owing to long-standing trade ties and the popularity of tea in British culture. D is correctly matched with 2: The United States of America is a significant market for Indian cotton fabrics, given the demand for diverse textile products.

Explanation

In India, inflation has traditionally been measured using the Wholesale Price Index (WPI) and stands true for 1997. The WPI tracks the price changes of goods at the wholesale level, reflecting the prices at which goods are sold in bulk and is published by the Economic Adviser in the Ministry of Commerce and Industry. However, in recent years, the Consumer Price Index (CPI) has gained prominence as a measure of inflation, especially for policy decisions. The CPI measures price changes from the consumer’s perspective, capturing the retail prices of goods and services. The Reserve Bank of India (RBI) has adopted the CPI as the key measure for its inflation targeting framework.

Explanation

The total stock of money in circulation among the public at a particular point of time is called money supply.

Option (b) is correct: Broad money (M3) represents the total money supply in the economy that is readily available for spending. It includes currency with the public and various bank deposits (demand and time deposits), but not the deposits that commercial banks hold with the RBI. Broad money (M3) in India includes:

Currency with the public: This refers to all currency notes and coins in circulation outside of banks. Demand deposits with banks: These are checking accounts or current accounts that allow depositors to withdraw funds on demand. Time deposits with banks: These are savings accounts or fixed deposits where funds are held for a specific period and cannot be withdrawn before maturity without penalty. "Other deposits with RBI" are a component of Reserve Money (M0), also known as high-powered money. These deposits are held by commercial banks with the Reserve Bank of India (RBI) and are part of the monetary base. While they are important for monetary policy, they are not included in the definition of broad money (M3).

Explanation

The Minimum Alternative Tax (MAT) was introduced in the Union Budget for 1996-97 to ensure that companies with substantial book profits pay a minimum amount of tax, even if their taxable income is reduced due to exemptions and deductions. MAT was introduced under Section 115JB of the Income Tax Act to prevent large corporations from exploiting tax loopholes and paying little to no taxes. This initiative was crucial for ensuring tax equity and broadening the corporate tax base. The MAT rate was initially set at 7.5% of book profits and has undergone periodic revisions over the years.

Explanation

Option (d) is correct:

Non-plan expenditure refers to all recurring and obligatory expenses of the government, which are not associated with specific planned development projects. It includes:

Defence expenditure: A significant part of non-plan expenditure allocated for maintaining the country’s security. Subsidies: Expenditures on subsidies like food, fertilizers, and petroleum products are non-plan in nature. Expenditures linked to previous plans: Commitments made during past plan periods, like spillovers of plan projects, also fall under non-plan expenditure. Interest payments: Payments on borrowings are a substantial component of non-plan expenditure and have consistently been the largest contributor.

Explanation

Option (d) is correct: The Human Development Index (HDI) is a composite statistic used to rank countries based on human development levels. It comprises three key dimensions:

Health: Assessed by life expectancy at birth, reflecting the ability to lead a long and healthy life. Education: Measured by two indicators:

Mean years of schooling: The average number of years of education received by people aged 25 and older. Expected years of schooling: The total number of years of schooling a child entering the education system can expect to receive. Standard of Living: It is evaluated by Gross National Income (GNI) per capita, adjusted for purchasing power parity (PPP), which reflects the average income of a country’s citizens.

Option (a), (b) and (c) are incorrect: HDI does not use GNP per capita, GDP or GDP per capita.

Explanation

As per the 1991 Census, the literacy rates for the mentioned Union Territories were:

Pondicherry (Puducherry): 74.91% Delhi: 76.09% Andaman & Nicobar Islands: 73.74% Chandigarh: 78.73% Dadra & Nagar Haveli: 39.45%

Explanation

National Income refers to the total monetary value of all final goods and services produced by a country’s residents within a specific period, usually a year.

Option (b) is correct: NNP at factor cost is the total income earned by factors of production owned by a country’s residents. This is also called National Income (NI). It excludes indirect taxes (like GST) and adds subsidies granted by the government from NNP at market price. NNP(FC) =NNP(MP) -(Indirect Taxes)+(Subsidies) Options (a), (c) and (d) are incorrect:

NNP at market price is the total market value of all final goods and services produced by the residents of a country (both within and outside the domestic boundary) after adjusting for depreciation. This measure reflects the monetary worth of the economy’s output, including taxes and subsidies. NNP(MP)=GNP(MP)-Depreciation Net Domestic Product (NDP) at Market Price is the net value of all final goods and services produced within the domestic territory of a country after accounting for depreciation. This measure focuses on the domestic economy only (excludes foreign factor earnings). It includes indirect taxes and excludes subsidies. NDP(MP)=GDP(MP)-Depreciation Net Domestic Product (NDP) at Factor Cost is the total factor earnings from goods and services produced within a country’s borders. NDP at factor cost focuses solely on production within domestic boundaries and reflects the true earnings of factors without tax distortions. NDP(FC)=NDP(MP)-(Indirect Taxes)+ (Subsidies)

Explanation

A is matched with 4: Dr. C. Rangarajan headed the Disinvestment Commission in the 1990s, which was tasked with recommending strategies for the disinvestment of shares in Public Sector Enterprises (PSEs) to improve efficiency and reduce the fiscal burden on the government. B is matched with 2: The Omkar Goswami Committee was formed to examine the issue of industrial sickness and suggest measures for the revival of sick industries. It focused on identifying the causes of industrial sickness and recommending policy interventions. C is matched with 1: Dr. Raja Chelliah chaired the Tax Re-forms Committee in the early 1990s, which laid the foundation for India’s tax reforms. The committee recommended simplifying the tax structure, broadening the tax base, and reducing tax rates to promote economic growth. D is matched with 3: The R.N. Malhotra Committee was constituted in 1993 to recommend reforms in the insurance sector. Its recommendations led to the opening up of the insurance sector to private players and the establishment of the Insurance Regulatory and Development Authority (IRDA).