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

Feb 21, 2017 18:23 IST

    Economy Survey 2016-17

    We are providing Economic Survey based IAS questions through this article are very important in terms of the upcoming IAS Prelims Exam 2017.

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

    1. Consider the following statements regarding the CST and VAT current tax system between the states and centre:
    I. States levy a value-added tax on most goods sold within the state.
    II. The centre levies a near VATable excise tax at the production stage.
    III. Sales of goods across states also fall inside the VAT system.

    Which of the above statements is correct?
    a. I and II
    b. II and III
    c. I and III
    d. All of the above

    Answer: a

    Explanation:

    Under the current system, states levy a value-added tax on most goods sold within the state, the centre levies a near VATable excise tax at the production stage. Sales of goods across states fall outside the VAT system and are subjected to an origin-based non-VATable tax (the Central Sales Tax, CST). It turns out that the CST far from acting as a tariff on interstate trade may actually provide an arbitrage opportunity away from a higher VAT rate on intra-state sales in some cases.

    The crucial determinant of whether the CST acts as a tariff is whether the buyer can receive an input tax credit (ITC) on the purchase if done within state20. The input tax credit is the defining feature of a VAT without this you are taxed not just on your value addition but on the entire sale value as with the CST.

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    2. India’s internal trade in goods seems surprisingly robust as compared to India’s external trade. consider the following statements regarding this:
    I. In India, smaller states tend to trade less.
    II. The manufacturing states of Tamil Nadu, Maharashtra and Gujarat tend to have trade surpluses
    III. Although less developed, Haryana and Uttar Pradesh appear to be manufacturing powerhouses due to proximity with NCR.

    Which of the above statements is correct?
    a. I and II
    b. II and III
    c. I and III
    d. All of the above

    Answer: b

    Explanation:

    India’s internal trade in goods seems surprisingly robust. This is true whether it is compared to India’s external trade or internal trade of other countries. Hearteningly, it seems that language is not a serious barrier to trade. There is enormous variation across states in their internal trade patterns.

    Smaller states tend to trade more, while the manufacturing states of Tamil Nadu, Maharashtra and Gujarat tend to have trade surpluses (exporting more than importing). Belying their status as agricultural and/or less developed, Haryana and Uttar Pradesh appear to be manufacturing powerhouses because of their proximity to NCR.

    The analysis does leave open the possibility that some proportion of India’s internal trade could be a consequence of current tax distortions, which are likely to be normalised under the GST.

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    3. Consider the following statements regarding India’s constitutional provisions on both achieving and circumscribing the common market:
    I. Articles 301-304 provide a layered set of rights and obligations and the Article 301 establishes the fundamental principle that India must be a common market.
    II. Article 302 gives Parliament the power to restrict free trade between and within states on grounds of public interest.

    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:

    That comparison requires understanding the constitutional provisions on both achieving and circumscribing the common market. Articles 301-304 provide a layered set of rights and obligations. Article 301 establishes the fundamental principle that India must be a common market:

    Article 301- Freedom of trade, commerce and intercourse.  Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. Articles 302-304 both qualify and elaborate on that principle.  Article 302 gives Parliament the power to restrict free trade between and within states on grounds of public interest.

    Article 302- Power of Parliament to impose restrictions on trade, commerce and intercourse. Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest.

    Complete study material of ECONOMIC SURVEY 2016-17

    4. Under which of the following parts of Indian Constitution ensures free trade in the entire territory of India?
    a. Part XIX
    b. Part XIII
    c. Part XII
    d. Part XI

    Answer: b

    Explanation:

    The gist of these provisions is that both the Centre and the States have considerable freedom to restrict trade and commerce that hinder the creation of one India. Moreover, the jurisprudence has unsurprisingly come down in favour of even more permissiveness. Evidently, while the purpose of Part XIII was to ensure free trade in the entire territory of India, this is far from how its practical operation has panned out.

    Financial levies as well as non-financial barriers imposed by the States have become a major impediment to a common market. Levies in the nature of motor vehicles taxes, taxes at the point of entry of goods into specified local areas, sales tax on manufacturers of goods from outside a particular State, have always existed between States. At the same time, many of such levies are constitutionally valid and have been upheld, in principle, by the Supreme Court. For instance, in Shree Mahavir Oil Mills v. State of Jammu and Kashmir, the Supreme Court upheld a notification issued under the Jammu and Kashmir General Sales Tax Act, 1962 which exempted the local producers of edible oil from sales tax in order to protect their businesses from facing closure.

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    5. Consider the following statements regarding the WTO law and the constitutional provision provided in Indian Constitutions for trade and commerce:
    I. The WTO has a membership of 164 countries with widely varying income levels and political systems: for example, the ratio of per capita GDP of the richest countries is more than 60 times that of the poorest, while the corresponding ratio within India is less than 5.
    II. The contrast is really between Articles 302 and 304 (b) of the Constitution and Article XX of the General Agreement on Tariff and Trade (GATT) WTO.

    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:

    The WTO has a membership of 164 countries with widely varying income levels and political systems: for example, the ratio of per capita GDP of the richest countries is more than 60 times that of the poorest, while the corresponding ratio within India is less than 5. Also, the WTO has democracies like the US and Europe and non-democracies like China whereas all Indian states are democratic. So, it cannot possibly be argued that the Indian states should have greater freedom than countries in the WTO on the issue of creating a common market. If that is reasonable, then the comparison between WTO rules and the provisions of the Constitution is not inappropriate. That is, it is reasonable to compare the common-market/regulatory freedom balance provided for countries in the WTO with the same provided for states in the Constitution.

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