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Economic Survey 2016-17 for IAS Prelims: One Economic India

Feb 21, 2017 15:29 IST

    Economy Survey 2016-17

    The Economic Survey has become one of the essential parts of IAS preparation. The Economic Survey is released by the Ministry of Finance every year. It has been found that in IAS Prelims Exam, many questions directly asked from the recently released Economy Survey of the respective year. Here, through this write-up, we have provided IAS questions created from the Economic Survey 2016-17.

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    1. India is on the cusp of implementing transformational reforms to create “One India, One Market, One Tax,” via the Goods and Services Tax (GST). Consider the following statements regarding internal integration achieved by India based on the new findings of 'Big Data' set available from the Goods and Service Tax Network:
    I. The first-ever estimates for interstate trade flows indicate that cross-border exchanges between and within firms amount to at least 54 per cent of GDP.
    II. A potentially exciting finding for which we have tentative not conclusive evidence is that while political borders impede the flow of people, language (Hindi specifically) does not seem to be a demonstrable barrier to the flow of goods.
    III. On trade as a percent of GSDP, smaller states like Uttarakhand, Himachal Pradesh and Goa trade more.

    Which of the following statement(s) is/are correct?
    a. Only I
    b. I and II
    c. II and III
    d. All of the above

    Answer: d

    Explanation:

    At a time when international integration is under siege and when India is on the cusp of implementing transformational reforms to create “One India, One Market, One Tax,” via the Goods and Services Tax (GST), it seems appropriate to ask how much internal integration India has achieved. To be clear, unless otherwise specified, hereafter, trade will refer to trade between states within India. This is done on the basis of a new “Big Data” set available from the Goods and Service Tax Network (GSTN- invoice level data on interstate movement of goods). Contrary to perception and to some current estimates, it seems that India is highly integrated internally, with considerable flows of both people and goods.

    The headline findings are:

    • The first-ever estimates for interstate trade flows indicate that cross-border exchanges between and within firms amount to at least 54 per cent of GDP, implying that interstate trade is 1.7 times larger than international trade. Both figures compare favourably with other jurisdictions: de facto at least, India seems well integrated internally. A more technical analysis confirms this, finding that trade costs reduce trade by roughly the same extent in India as in other countries.
    • A potentially exciting finding for which we have tentative not conclusive evidence is that while political borders impede the flow of people, language (Hindi specifically) does not seem to be a demonstrable barrier to the flow of goods.
    • The patterns of flows of goods are broadly consistent with priors but also throw up some surprises: For example, on trade as a per cent of GSDP, smaller states like Uttarakhand, Himachal Pradesh and Goa trade more; the net exporters are the manufacturing powerhouses of Tamil Nadu and Gujarat but otherwise agricultural Haryana and Uttar Pradesh are also powerhouses because of Gurugram and NOIDA, respectively which have become part of the great Delhi urban agglomeration.

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    2. Consider the following statements regarding India’s international and intra-national trade flows with other countries:
    I. India’s aggregate interstate trade (54 per cent of GDP) is not as high as that of the United States (78 per cent of GDP) or China (74 per cent of GDP).
    II. India’s aggregate interstate trade is substantially greater than provincial trade within Canada and greater than trade between Europe Union (EU) countries.

    Which of the following statement(s) is/are correct?
    a. Only I
    b. Only II
    c. Both I and II
    d. Neither I nor II

    Answer: c

    Explanation:

    India’s aggregate interstate trade (54 per cent of GDP) is not as high as that of the United States (78 per cent of GDP) or China (74 per cent of GDP) but substantially greater than provincial trade within Canada and greater than trade between Europe Union (EU) countries (which is governed by the “four freedoms”: allowing unfettered movement of goods, services, capital, and people). This is all the more striking given that the data here covers mainly manufactured goods, excludes agricultural products, and is therefore an underestimate of total internal trade in goods. A substantial portion (almost half) of trade across states in India occurs as stock transfers within firms. That is, intra-firm trade is high relative to arms-length trade.

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    3. Consider the following statements regarding interstate trade in India:
    I. The most open states by the GSDP measure are Uttarakhand, Goa, Himachal Pradesh and Gujarat with Assam, Bihar and Uttar Pradesh bringing up the rear.
    II. High GSDP states such as Maharashtra and Tamil Nadu are conspicuous in their absence from the top of the list – though their trade to GSDP ratio is still substantial at 33 per cent and 24 per cent, respectively.
    III. Himachal Pradesh and Uttarakhand, whose exceptional trade volumes might be explained by the exemption from central excise tax for manufacturing in these states.

    Which of the following statement(s) is/are correct?
    a. Only I
    b. I and II
    c. II and III
    d. All of the above

    Answer: d

    Explanation:

    The most open states by this measure are Uttarakhand, Goa, Himachal Pradesh and Gujarat with Assam, Bihar and Uttar Pradesh bringing up the rear. High GSDP states such as Maharashtra and Tamil Nadu are conspicuous in their absence from the top of the list – though their trade to GSDP ratio is still substantial at 33 per cent and 24 per cent, respectively. This is the first of many indications that while India’s borders seem porous, this might be because of its complex regulations rather than in spite of it.

    Himachal Pradesh and Uttarakhand, whose exceptional trade volumes might be explained by the exemption from central excise tax for manufacturing in these states. The outlier status of these states is even more apparent when we examine the gravity relationship across states in the later sections – that is, whether smaller states trade more than larger ones. In Himachal Pradesh, for example, there is a high concentration of flows into firms registered in the Baddi/Solan/Guru Majra area of the state, whereas for Uttarakhand the trade concentration is high in addresses originating in SIDCUL zones of the state.

    Complete study material of ECONOMIC SURVEY 2016-17

    4. Consider the following statements regarding the comparative trade relation within India, Canada and US states and the log of their land area:
    I. Indian states exhibit a negative relationship between the size of the state and the openness to both inter- and intra-firm trade.
    II. Canadian and the US states contrary to India have a weak relationship between land area and openness to trade.
    III. The Indian states Uttarakhand, Himachal Pradesh and Gujarat stand out with much higher trade than other states of similar size in India which could be explained by domestic taxes.

    Which of the following statement(s) is/are correct?
    a. Only I
    b. I and II
    c. II and III
    d. All of the above

    Answer: d

    Explanation:

    Indian states exhibit a negative relationship between the size of the state and the openness to both inter- and intra-firm trade. Also of note is that Canadian and US states contrary to India have a weak relationship between land area and openness to trade. So, the gravity intuition that small jurisdictions should trade more outside than inside is borne out to a greater extent for the Indian states than the United States or the provinces within Canada. Given this relationship, Uttarakhand, Himachal Pradesh and Gujarat stand out with much higher trade than other states of similar size in India which could be explained by domestic taxes.

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    5. Consider the following statements regarding data preparation and challenges lies in interstate trade in India:
    I. The estimates for interstate trade values and trade balances were calculated using the TINXSYS dataset, administered and hosted by the Goods and Services Tax Network (GSTN).
    II. TINXSYS contains CST tax invoices for trades occurring between two states.
    III. The name of origin and destination state for any trade flow is the keys to understanding interstate trade patterns.

    Which of the following statement(s) is/are correct?
    a. Only I
    b. I and II
    c. II and III
    d. All of the above

    Answer: d

    Explanation:

    The estimates for interstate trade values and trade balances were calculated using the TINXSYS dataset, administered and hosted by the Goods and Services Tax Network (GSTN). TINXSYS contains CST tax invoices for trades occurring between two states. The dataset is populated by the states individually uploading different CST-related forms – i.e., the trade values reported are imports into a state because CST forms are issued by the importing states.

    In the ideal case, each reported transaction is expected to have the Tax Identification Numbers (TINs) of the importing and exporting firms, the invoice date and value, date of issue of the CST form, the nature of these firms, a code for the commodity and the commercial tax office at which the firms are registered. The data is however not reported in this consistent format, with the most crucial data point – the name or the code of the exporting state or the TIN of the exporting firm – is misreported in the dataset - about 5% of the time. The level of misreporting varies slightly across states with Gujarat having the highest proportions at 10%.

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