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Economic Survey 2016-17 for IAS Prelims: Review of Economic Development

Feb 7, 2017 17:42 IST

    Economy Survey 2016-17

    The Economic Survey is quite extensive to read and also difficult to understand. If IAS aspirants find questions, already created from the Economic Survey 2016-17 will be very useful and convenient for them to study for IAS Prelims Exam 2017. Here, we have provided a number of questions created from the Economic Survey 2016-17, read and check your progress.

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

    1. Consider the following statements regarding the economic development of India during the financial year 2016-17:
    I. At the sectoral level, growth of agriculture and allied sectors improved significantly in 2016-17, following the normal monsoon in the current year which was preceded by sub-par monsoon rainfall in 2014-15 and 2015-16.
    II. Higher growth in agriculture sector in 2016-17 is not surprising; rabi sowing so far and the first advance estimates of the kharif crop production for the year attest to this.
    III. After achieving a real growth of 7.4 per cent in terms of value added in 2015-16, the growth in industrial sector, comprising mining and quarrying, manufacturing, electricity, gas and water supply, and construction sectors moderated in 2016-17.

    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 the sectoral level, growth of agriculture and allied sectors improved significantly in 2016-17, following the normal monsoon in the current year which was preceded by sub-par monsoon rainfall in 2014-15 and 2015-16. Higher growth in agriculture sector in 2016-17 is not surprising; rabi sowing so far and the first advance estimates of the kharif crop production for the year attest to this. After achieving the real growth of 7.4 per cent in terms of value added in 2015-16, the growth in industrial sector, comprising mining and quarrying, manufacturing, electricity, gas and water supply, and construction sectors have been moderated in 2016-17.

    This is in tandem with the moderation in manufacturing, mostly on account of a steep contraction in capital goods, and consumer non-durable segments of Index of Industrial Production (IIP). The contraction in mining and quarrying largely reflects slowdown in the production of crude oil and natural gas. However, the performance of industrial sector in terms of value added continued to be at variance with its achievements based on IIP.

    Economic Survey 2016-17 for IAS Prelims- Fiscal Rules

    2. In last two financial year, the persistent rise in food inflation in India rises due to:
    a. The prices of pulses, in particular tur and urad, remained persistently high from mid 2015 to mid 2016 due to shortfall in domestic and global supply.
    b. The prices of Sugar firmed up on account of lower production and hardening of price in the international market.
    c. The prices of vegetables, which flared during the lean summer season, have also declined sharply as supply picked up during the post monsoon and winter season.
    d. All of the above

    Answer: d

    Explanation:

    The inflation in India is repeatedly being driven by narrow group of food items. Pulses continued to be the major contributor of food inflation. The prices of pulses, in particular tur and urad, remained persistently high from mid 2015 to mid 2016 due to shortfall in domestic and global supply. Since July 2016, pulses prices except gram dal prices have been declining owing to near normal monsoon, increase in the Rabi pulses sowing and buffer build up by the Government. Sugar prices also firmed up on account of lower production and hardening of price in the international market.

    Vegetable prices, which flared during the lean summer season, have also declined sharply as supply picked up during the post monsoon and winter season. The CPI food inflation (CFPI) has, as a result, dipped to a two-year low of 1.4 per cent in December 2016. The inflation for pulses and products dipped to negative 1.6 per cent in December 2016, and the vegetables inflation remained negative since September 2016.

    Important topic in Economic Survey 2016-17 - Why Universal Basic Income so important for India?

    3. The core inflation has recorded a decreasing trend in last few months of 2016. Which of following commodities considered as the major contributor of the core inflation in India?
    a. Pan
    b. Tobacco and intoxicants
    c. Clothing and footwear
    d. All of the above

    Answer: d

    Explanation:

    The core inflation has dropped sharply in the recent months (from second half of 2016). The CPI based core inflation (exclusive of food and fuel group) has remained sticky so far during this fiscal year. CPI based refined core inflation (exclusive of food & fuel group, petrol & diesel) has been averaging around 5 per cent in the current fiscal year. Inflation for Pan, tobacco & intoxicants, Clothing & footwear, Housing and Education groups continued to be above 5 per cent and the major contributors of the core inflation. Inflation for the ‘Transport & communication’ group has been rising in recent months partly reflecting rise in global crude oil prices and its pass-through to domestic petrol and diesel prices. Price of crude oil (Indian basket) has increased from $39.9 in April 2016 to $52.7 in December 2016. Likewise, comparatively higher gold price in the international market this financial year has contributed towards sticky core inflation.

    A complete set of Current Affairs Quizzes- January 2017

    4. The Government of India has amended the Reserve Bank of India act, 1934 during the current financial year. Consider the following statements regarding amendments in the Reserve Bank of India act, 1934:
    I. The amended Act provides for inflation target to be set by the Government in consultation with the Reserve Bank, once in every five years and further provides for a statutory basis for the constitution of an empowered Monetary Policy Committee (MPC).
    II. With a view to maintain price stability, while keeping in mind the objective of growth, the Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016.

    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 Government amended the Reserve Bank of India Act, 1934 during the current financial year. With a view to maintain price stability, while keeping in mind the objective of growth, the Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016. The amended Act provides for inflation target to be set by the Government in consultation with the Reserve Bank, once in every five years and further provides for a statutory basis for the constitution of an empowered Monetary Policy Committee (MPC).
    As per the revised monetary policy framework, the Government has fixed the inflation target of 4 per cent with tolerance level of +/- 2 per cent for the period beginning from 5th August, 2016 to March 31, 2021.

    The Government has also notified the constitution of the MPC on 29th September 2016. So far the MPC has already held two meetings. The MPC, in its latest meeting held on December 7, 2016, while maintaining accommodative policy stance did not change the policy rate. The policy rate was reduced by 25 basis points to 6.25 per cent in its first meeting held on October 4, 2016. Hence the reverse repo rate under the Liquidity Adjustment Facility (LAF) remains 5.75 per cent, and the Marginal Standing Facility (MSF) rate is 6.75 per cent.

    Union Budget 2017 Questions for IAS Exam

    5. The RBI has accepted many of the recommendations of the Khan Committee to boost investor participation and market liquidity in the corporate bond market. Consider the following statements regarding Khan Committee on corporate bond market:
    I. The Khan Committee has proposed that banks should be allowed to pledge corporate bonds as collateral to borrow funds from the Reserve Bank’s overnight repo window.
    II. Khan Committee also recommended that foreign portfolio investors be allowed to trade directly in corporate bonds.

    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 RBI took a number of measures to strengthen the corporate bond market in India. It accepted many of the recommendations of the Khan Committee to boost investor participation and market liquidity in the corporate bond market. The new measures as announced by the RBI include:
    • Commercial banks are permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing;
    • Brokers registered with the Securities and Exchange Board of India (SEBI) and authorized as market makers in corporate bond market permitted to undertake repo / reverse repo contracts in corporate debt securities. This move will make corporate bonds fungible and thus boost turnover in the secondary market;
    • Banks allowed to increase the partial credit enhancement they provide for corporate bonds to 50 per cent from 20 per cent. This move will help lower-rated corporate to access the bond market;
    • Permitting primary dealers to act as market makers for government bonds, to give further boost to government securities by making them more accessible to retail investors; and
    • To ease access to the foreign exchange market for hedging in over the counter (OTC) and exchange-traded currency derivatives, the RBI has allowed entities exposed to exchange rate risk to undertake hedge transactions with simplified procedures, up to a limit of US$30 million at any given time.

    Current Affairs Quizzes for IAS Prelims 2017- January 2017

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