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Economic Survey 2016-17 for IAS Prelims: Universal Basic Income II

Feb 17, 2017 15:05 IST

    Economy Survey 2016-17

    Here, in this article, we have provided Indian Economy IAS questions created from the recent Economic Survey 2016-17. The given Indian Economy questions are very important for IAS Prelims Exam 2017 which is to be held on 18th June 2017.

    Economic Survey 2016-17 for IAS Prelims: Universal Basic Income I

    1. The Economic Survey 2016-17 says that Universal Basic Income will tackle the number of issues facing by the policy makers. Consider the following statements regarding the significance of UBI in Indian economy:
    I. By focusing on universality, UBI reduces the burden on the administration further by doing away with the tedious task of separating the poor from the non-poor.
    II. Conceptually, a UBI reduces out of system leakage because transfers are directed straight to the beneficiaries’ bank accounts.
    III. Given the link between misallocation and exclusion errors, a UBI that improves allocation of resources should mechanically bring down exclusion error.

    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 UBI, by design, should effectively tackle issues related to misallocation. As envisaged in this chapter, a UBI will simply amount to a transfer of resources from above and need not be “accessed” by beneficiaries. The simplicity of the process cannot be overstated: beneficiaries are simply required to withdraw money from their accounts as and when they please, without having to jump through bureaucratic hoops. The simplicity of the process also implies that the success of a UBI hinges much less on local bureaucratic ability than do other schemes. In addition, by focusing on universality, UBI reduces the burden on the administration further by doing away with the tedious task of separating the poor from the non-poor.

    Conceptually, a UBI reduces out of system leakage because transfers are directed straight to the beneficiaries’ bank accounts. The scope for diversion is reduced considerably, since discretionary powers of authorities are eliminated almost wholly. Furthermore, UBI’s expanded coverage will likely impact out of system leakage since the state is answerable to a larger section of its citizens. Finally, given the fewer avenues for leakages, monitoring a UBI would be easier than many other schemes. Given the link between misallocation and exclusion errors, a UBI that improves allocation of resources should mechanically bring down exclusion error. Furthermore, by virtue of being universal, exclusion errors under the UBI should be lower than existing targeted schemes.

    Economic Survey 2016-17 for IAS Prelims: The Economic Vision for Precocious Cleavage India II

    2. The Economic Survey 2016-17 says that the financial inclusion in India has progressed substantially since the PradhanMantri Jan DhanYojana (PMJDY) came into the existence. Consider the following statements regarding Financial Inclusion Insights 2015 ( FII - 2015):
    I. Ownership of bank accounts has increased to about 2/3rd of all adults in India.
    II. Active use has increased to about 40 percent.
    III. In terms of active use, though, most states perform less well with a majority of them having less than 5 percent active accounts.

    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: b

    Explanation:

    Financial inclusion in India has progressed substantially since the Pradhan Mantri Jan Dhan Yojana (PMJDY). According to Financial Inclusion Insights (FII – 2015),while ownership of bank accounts has increased to about 2/3rd of all adults in India, active use has increased to about 40 percent. Geographically, most of the country has over 50 percent of adults owning banking accounts with Madhya Pradesh, Chhattisgarh, Bihar and some Northeast states doing less well. In terms of active use, though, most states perform less well with a majority of them having less than 50 percent active accounts. Digging a little deeper, active use is higher amongst males, in urban areas and for those above the poverty line. We look at two constraints to active use: one, physical distance separating people from these bank branches; two, number of persons per bank.

    Economic Survey 2016-17 for IAS Prelims: The Economic Vision for Precocious Cleavage India II

    3. UBI can support the governments initiative of financial inclusion through:
    a. An increased number of transactions in banks.
    b. Increase in the volume of revenue from government transfers.
    c. A corresponding decrease in per unit fixed costs, thereby increasing the profitability of banking correspondents (BCs).
    d. All of the above

    Answer: d

    Explanation:

    A Taskforce on an Aadhaar-Enabled Unified Payment Infrastructure recommended increasing commissions to BCs in order to make them profitable. This profitability is highly dependent on the volume of transactions per BC, and one can model scenarios where a UBI can lead to increased financial inclusion through an increased number of transactions. A very plausible hypothesis is that as a UBI is provided to individuals, there will be an endogenous increase in the volume of transactions and revenue from government transfers along with a corresponding decrease in per unit fixed costs, thereby increasing the profitability of BCs and expanding their coverage.

    Complete study material of ECONOMIC SURVEY 2016-17

    4. A UBI can help women through:
    a. Giving money to women also improves the bargaining power of women within households and reduces concerns of money being splurged on conspicuous goods.
    b. Reducing the fiscal cost of providing a UBI (to about half) but have large multiplier effects on the household.
    c. Both a and B
    d. Neither a nor b

    Answer: b

    Explanation

    Women face worse prospects in almost every aspect of their daily lives – employment opportunities, education, health or financial inclusion. Simultaneously, there exists plenty of evidence on both, the higher social benefits and the multi-generational impact of improved development outcomes for women. A UBI for women can, therefore, not only reduce the fiscal cost of providing a UBI (to about half) but have large multiplier effects on the household. Giving money to women also improves the bargaining power of women within households and reduces concerns of money being splurged on conspicuous goods. The UBI could also factor in children in a household to provide a higher amount to women. This addition, though, has three potential problems – one, it may not be easy to identify the number of children in a household; two, it may encourage households to have a greater number of children; and three, phasing out boys from beneficiary list once they reach a certain age (say 18 years) may not be easy to monitor and undertake.

    Union Budget 2017 Questions for IAS Exam

    5. How JAM is crucial to the success of UBI?
    a. JAM is crucial to the success of the UBI is effective financial inclusion.
    b. In terms of JAM preparedness, considerable ground for UBI has been covered rapidly.
    c. It will help in identifying the fungible nature of money where the UBI results in greater capture by corrupt actors.
    d. All of the above

    Answer: d

    Explanation:

    Crucial to the success of the UBI is effective financial inclusion. Nearly a third of adults in India still do not have a bank account and are likely to be left behind. These are also likely to belong to the poorest social groups – women, SCs, STs, the ageing and the infirm – who benefit most from state-funded subsidies. Currently, as per official records, there are 26.5 crore Jan Dhan accounts (21 percent of the population) across the country. The per capita density of these accounts is relatively high in many of the poorer states and Chhattisgarh has the highest penetration. Of the 26.5 crore Jan Dhan accounts, 57 percent are Aadhaar seeded. Some states in the North-East and Jammu and Kashmir lag behind.

    In terms of JAM preparedness, considerable ground has been covered rapidly, but there is quite some way to go. While Aadhaar coverage speed has been exemplary, with over a billion Aadhaar cards being distributed, some states report authentication failures: estimates include 49 percent failure rates for Jharkhand, 6 percent for Gujarat, 5 percent for Krishna District in Andhra Pradesh and 37 percent for Rajasthan. Failure to identify genuine beneficiaries results in exclusion errors.

    Current Affairs Quizzes for IAS Prelims 2017- January 2017

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