UPSC 2018 Indian Economy Questions with Answers

Explanation

The Goods and Services Tax (GST) in India classifies goods and services into various tax slabs, with certain essential items exempted to ensure affordability.

Option (c) is correct:

Unprocessed cereal grains including those that are hulled are exempted from GST as they are considered basic food staples. Cooked eggs are exempt from GST aligning with the tax exemption on basic food products. Newspapers irrespective of whether they contain advertising material are exempt from GST to support the dissemination of information. Processed and canned fish are subject to GST as they are considered value-added products

Explanation

In 2016, India introduced a 6% Equalization Levy targeting income from online advertisement services provided by non-resident entities to Indian businesses. This measure aimed to tax digital transactions and level the playing field between domestic and foreign service providers. In 2020 it was expanded to include a 2% levy on e-commerce transactions by non-resident operators.

Statement 1 is incorrect: The Equalization Levy was introduced through the Finance Act, 2016 as a separate chapter and is not part of the Income Tax Act. This distinction ensures that the levy operates independently of the existing income tax framework.

Statement 2 is incorrect: Non-resident entities cannot claim a tax credit for this levy in their home countries which can potentially lead to double taxation. It doesn’t fall within the scope of Double Taxation Avoidance Agreements (DTAAs). Its exclusion from the Income Tax Act raises challenges regarding international tax credits and potential double taxation for foreign entities.

Explanation

India enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999, to comply with its obligations under the World Trade Organization (WTO). As a member of the WTO, India is bound by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets minimum standards for the protection of various forms of intellectual property, including geographical indications (GIs). TRIPS Agreement prescribe the minimum standards of protection that WTO members must provide for GIs. These provisions require member countries to prevent the misuse of GIs and to ensure that only authorized users can use a GI on products originating from the specified region

Explanation

Human capital formation refers to the process of improving the knowledge, skills, and capacities of people, which enhances their productivity and contributes to economic growth. This involves education, training, healthcare, and other investments in people.

Statement 2 is correct: It directly reflects the essence of human capital formation, which focuses on increasing the knowledge, skill levels, and capacities of individuals.

Statement 4 is correct: Human capital is considered intangible wealth, as it represents non-physical assets like skills, education, and health, which contribute to economic productivity. Statements 1 and 3 are incorrect: These refer to the accumulation of physical or tangible capital (like machinery, infrastructure), which is different from human capital.

Explanation

Capital formation refers to the accumulation of physical assets like machinery, tools, and infrastructure, which are expected to boost production.

Option (d) is correct: Even in a high-saving economy, if the capital-output ratio is high, it means that a large amount of capital is required to produce a small increase in output. This indicates inefficient use of capital or diminishing returns on investment, leading to limited growth in output despite increased savings and investments. Options (a), (b) and (c) are incorrect: While weak administration, illiteracy, and high population density can slow economic growth by affecting governance, workforce skills, and resource allocation, they don’t directly influence how efficiently invested capital is converted into output--this efficiency is specifically measured by the capital-output ratio.

Explanation

Opportunity cost: refers to the value of the next best alternative foregone when a choice is made. Even if a commodity is provided "free" to the public, resources (such as government funds, labor, or infrastructure) are still required for its provision.

Option (c) is correct: If a commodity is provided free to the public by the Government, then the opportunity cost is transferred from the consumers of the product to the tax-paying public. As per microeconomics, the opportunity cost is zero for free goods such as air and common goods such as fish/grazing land. For public goods such as street lights and defence, the opportunity cost is involved (The government could have spent that much money on street lights rather than on the military). So, the opportunity cost is not zero.