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Economic Survey 2016-17 for IAS Prelims: Economic Outlook and Policy Challenges Part 1

Feb 7, 2017 17:29 IST

    Economy Survey 2017

    In the IAS Prelims exam, every year few questions are directly asked from the economic survey as it is the most important document regarding the socio-economic policies of India. The Economic Survey of India is an annual document of the Ministry of Finance, Government of India.

    Current Affairs for IAS Prelims Exam 2017- 6th February 2017

    Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarises the performance of major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term. The Finance Ministry of India presents the Economic Survey in the parliament every year, just before the Union Budget.

    Union Budget 2017 Questions for IAS Exam

    Here, we provide exclusive questions on Economic Survey 2017 which can prove to be extremely helpful in IAS Prelims 2017 preparation.

    1. According to the economic survey 2017, if world trade continues to grow more slowly than overall GDP, as it has done in recent years:

    a. The equilibrium carrying capacity of the world’s export-GDP ratio would actually increase.
    b. The equilibrium carrying capacity of the world’s export-GDP ratio would actually fall.
    c. The equilibrium carrying capacity of the world’s export-GDP ratio would actually remain constant.
    d. The equilibrium carrying capacity of the world’s export-GDP ratio couldn’t be determined.

    Answer: b

    Explanation:

    The trade-GDP ratio for the world since 1870 has highlighted four phases. There were two phases of globalisation (1870-1914, 1945-1985), one phase of the hyperglobalisation between 1985 and 2008, and one phase of deglobalisation in the inter-war period. These will have potentially important consequences for Indian exports and growth in the near future.

    During the boom years between 2003 and 2011, India’s real GDP growth averaged 8.2 percent, and exports grew at an annual rate of between 20 and 25 percent (in real dollar terms, for goods and services). So, assume conservatively that India aims to grow at 8 percent for the next decade and that that requires growth in exports of goods and services of 15 percent, respectively.

    Then, if we assume that the world will continue to grow at 3 percent growing forward and the world trade continues to grow more slowly than overall GDP, as it has done in recent years, the equilibrium carrying capacity of the world’s export-GDP ratio would actually fall.

    Current Affairs Quizzes for January 2017

    2. The economic survey 2017 states that Demonetisation was aimed at signalling a regime change, emphasising the government’s determination to penalise illicit activities and the associated wealth. Consider the following statements regarding Demonetisation as stated by the Economic Survey 2017:

    1) In demonetisation, the two largest denomination notes, Rs 500 and Rs 1000 which together comprise 86 percent of all the cash in circulation were demonetised.
    2) These notes were deprived of their legal tender status, except for specified activities (such as paying utility bills).
    3) Restrictions were placed on the convertibility of domestic money and bank deposits.

    Which of the above statements is true?

    a. 1 and 2
    b. 2 and 3
    c. 1 and 3
    d. 1, 2 and 3

    Answer: d

    Explanation:

    A radical governance-cum-social engineering measure was enacted on November 8, 2016. The two largest denomination notes, Rs 500 and Rs 1000—together comprising 86 percent of all the cash in circulation—were “demonetised” with immediate effect, ceasing to be legal tender except for a few specified purposes. These notes were to be deposited in the banks by December 30, while restrictions were placed on cash withdrawals.

    In other words, restrictions were placed on the convertibility of domestic money and bank deposits. The aim of the action was fourfold that is to curb corruption, counterfeiting, the use of high denomination notes for terrorist activities, and especially the accumulation of black money, generated by income that has not been declared to the tax authorities.

    Demonetisation was aimed at signalling a regime change, emphasising the government’s determination to penalise illicit activities and the associated wealth. In effect, the tax on illicit activities as well as on legal activities that were not disclosed to the tax authorities was sought to be permanently and punitively increased.

    Union Budget 2017 Questions for IAS Exam Part-3

    3. According to the Economic Survey 2017, which of the following statements will be the benefits of the transformational GST Bill?

    a. It will create a common Indian market.
    b. It will improve tax compliance
    c. It will boost investment and growth
    d. All of the above

    Answer: d

    Explanation:

    The highlight of the government's steps to shape the medium-term trajectory of the economy was the transformational GST bill, which will create a common Indian market, improve tax compliance, boost investment and growth – and improve governance; the GST is also a bold new experiment in the governance of cooperative federalism.

    The much-needed action to remonetise the economy includes expeditiously supplying of as much cash as necessary in the market, especially in lower denomination notes; and complementing demonetisation with more incentive-compatible actions such as bringing land and real estate into the GST, reducing taxes and stamp duties, and ensuring that the follow-up to demonetisation does not lead to over-zealous tax administration.

    4. The Survey again specifies that the private investment remains weak because of the twin balance sheet problem that has been the Indian economy’s festering wound for several years now. Which of the following statements best describes the twin balance sheet problem?

    a. The overleveraged and distressed companies and the rising Non-Performing Assets in Public Sector Banks balance sheets.
    b. Growing annual fiscal deficit and decreasing Indian exports.
    c. Growing annual revenue deficit and devaluing of the Indian rupee.
    d. All of the above

    Answer: a

    Explanation:

    One of the most critical short-term challenges confronting the Indian economy is the twin balance sheet (TBS) problem—the impaired financial positions of the Public Sector Banks (PSBs) and some large corporate houses— what we have hitherto characterised as the ‘Balance Sheet Syndrome with Indian characteristics’. By now, it is clear that the TBS problem is the major impediment to private investment, and thereby to a full-fledged economic recovery.

    The problems in the banking system have been growing for some time. Stressed assets (nonperforming loans plus restructured assets) have risen ever since 2010, impinging on capital positions.

    Banks have responded by limiting the flow of credit to the real economy so as to conserve capital, while investors have responded by pushing down bank valuations, especially over the past year. The shares of many banks now trade well below their book value.

    This balance sheet vulnerability is in some ways a mirror and derivative of similar frailties in the corporate sector, especially the large business houses that borrowed heavily during the boom years to invest in infrastructure and commodity-related businesses, such as steel. Corporate profits are low while debts are rising, forcing firms to cut investment to preserve cashflow.

    Current Affairs Quiz for February 2017 Questions I

    5. Consider the followings data regarding the current Political Carrying Capacity of the World for Openness:

    1) The world’s goods exports-GDP ratio is about 21.1 percent.
    2) The world’s service exports-GDP ratio is about 7 percent.
    3) India’s service exports-GDP ratio is about 0.3 percent.

    Which of the above statements is correct?

    a. Only 1
    b. 1 and 3
    c.  2 and 3
    d.  All of the above

    Answer: b

    Explanation:

    The current Political Carrying Capacity of the World for Openness is as follows:

    • The world’s goods exports-GDP ratio is about 21.1 percent.
    • The world’s service exports-GDP ratio is about 6.1 percent.
    • The world’s goods and service exports-GDP ratio is about 27.3 percent.

    Meanwhile, the ratios of the political carrying capacity of India are as follows:

    • India's goods exports-GDP ratio is about 0.4 percent.
    • India's service exports-GDP ratio is about 0.3 percent.
    • India's goods and service exports-GDP ratio is about 0.6 percent.

    • China's goods exports-GDP ratio is about 2.9 percent.
    • China's service exports-GDP ratio is about 0.4 percent.
    • China's goods and service exports-GDP ratio is about 3.3 percent.

    Union Budget 2017 Questions for IAS Exam Part-1

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