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Economic Survey 2016-17 for IAS Prelims: Two Analytical Narratives on States’ Development II

Mar 1, 2017 16:57 IST

    Economic Survey on demonetisation part 4Indian economy is one of the vital sections of the IAS Prelims Exam. A large number of questions asked in the IAS Prelims Exam every year. The UPSC syllabus for Indian Economy consists of varied ranges of topics. The Economic Survey of the respective year is one such important aspect of IAS Prelims Exam. Here, we have provided the Indian economy IAS questions created from the Economic Survey 2016-17 very useful for the upcoming IAS Prelims Exam.

    Economic Survey 2016-17 for IAS Prelims- Two Analytical Narratives on States’ Development

    1. In India, the state governments receive funds from the central governments through:
    a. A shares of central taxes, as stipulated by Finance Commissions
    b. Plan and non-plan grants
    c. Plan and non-plan loans and advances
    d. All of the above

    Answer: d

    Explanation:

    State governments up to now have received funds from the Centre via different channels: a share of central taxes, as stipulated by the Finance Commissions; plan and non-plan grants and plan and non-plan loans and advances

    These funds constitute “gross devolution to states” and the entire amount is not “aid”. When it comes to development within India, the country has followed the path prescribed by the first development economists. It has provided extensive transfers to certain poorer states in an attempt to spur their development.

    Current Affairs Quizzes for IAS Prelims Exam 2017- February Week 4

    2. The redistributed resources from the Centre differ from traditional “aid”. Consider the following statements regarding the aspects of redistributed resources and traditional “aid” which received by the state governments:
    I. Redistributed resources are intra-country transfers and do not augment overall national disposable income like foreign aid does.
    II. The donor-recipient relationship is also very different because states benefiting from transfers are part of national governance structures that determine them.

    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:

    Funds, which received by the state governments from the Centre constitutes “gross devolution to the states” and the entire amount is not “aid”. The gross devolution entails a strong redistributive element. Certain state-specific characteristics (captured in the ‘Special Category’ status) have determined whether some states are more dependent on such transfers, and particularly concessional assistance (grants).

    The 'Special Category' states have been heavily dependent on such flows for their developmental needs vis-à-vis other states. However, redistributed resources from the Centre differ from traditional “aid” in two important aspects. First, these are intra-country transfers and do not augment overall national disposable income like foreign aid does; second, the donor-recipient relationship is also very different because states benefiting from transfers are part of the national governance structure that determine them. The objective of the chapter is not to argue for the replacement of such transfers, but to examine their effects.

    Complete study material of ECONOMIC SURVEY 2016-17

    3. Consider the following statements regarding the Redistributive Resource Transfers’ (RRT) from Centre to State governments:
    I. RRT to a state is defined as gross devolution to the state adjusted for the respective state’s share in the aggregate gross domestic product.
    II. The definition of RRT excludes the impact such transfers have on expenditures undertaken by state governments.
    III. RRT is one specific measure of transfers and is not a definitive metric of redistribution.

    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 ‘Redistributive Resource Transfers’ (RRT) to a state is defined as gross devolution to the state adjusted for the respective state’s share in the aggregate gross domestic product. Thus RRT is not identical to gross devolution. This adjustment is made to ensure that only the portion of resources devolved to the states over and above their contribution to Gross Domestic Product is included as RRT.

    An alternative definition (gross devolution net of the amount the state would have received as per its contribution to the country-wide fiscal effort measured by the state’s share in aggregate own tax revenue) is also considered to check whether results obtained using the first definition are robust or not. The definition of RRT excludes the impact such transfers have on expenditures undertaken by state governments. It is also essential to note that any redistribution that might occur directly by the Centre’s spending is also excluded. Thus, RRT is one specific measure of transfers and is not a definitive metric of redistribution.

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    4. Among which of the following states is the largest recipient of Redistributive Resource Transfers during the year 2015?
    a. Sikkim
    b. Arunachal Pradesh
    c. Mizoram
    d. Goa

    Answer: a

    Explanation:

    During the year 2015, the top 10 recipients of RRT received in per capita terms are- Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam (all 'Special Category' states). While gross devolution per-capita per annum is at Rs. 32000 on average for the top 10 recipients of which Rs. 26000 (81 percent) is estimated as RRT in 2015.

    RRT and Gross Devolution

    Annual per capita RRT flows for all the northeastern states (except Assam) and Jammu and Kashmir have exceeded the annual per-capita consumption expenditure that defines the all-India poverty lines, especially the rural.

     

    Current Affairs Quizzes for IAS Prelims 2017- January 2017

    5. Consider the following statements regarding the impact of an abundant natural resource on the growth of an economy:
    I. The economies with abundant natural resources have actually tended to grow less rapidly than resource-scarce economies.
    II. The exploitation of natural resources generates rents, which lead to rapacious rent-seeking (the voracity effect) and increased corruption.
    III. The natural resource ownership exposes countries to commodity price volatility, which can destabilise GDP growth.

    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:

    Several economists saw natural resources as a way out of the low saving-low capital development trap. But with the benefit of hindsight, it has become clear that economies with abundant natural resources have actually tended to grow less rapidly than resource-scarce economies. Economic geographer Richard Auty coined the phrase “resource curse” in 1993 to describe this phenomenon; since then, it has been analysed in a number of studies such as Sachs and Warner (1995, 1999), Sala-i-Martin and Subramanian (2003) and Ross (2014).

    As with foreign aid, the negative association between resource abundance and growth poses a conceptual puzzle. In the literature, three possible channels of causation have been identified. First, the exploitation of natural resources generates rents, which lead to rapacious rent-seeking (the voracity effect) and increased corruption. Second, natural resource ownership exposes countries to commodity price volatility, which can destabilise GDP growth. Finally, natural resource ownership– like foreign aid -- makes countries susceptible to “Dutch Disease".

    IAS Prelims 2017- GS Economy complete Study Material

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