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Economic Survey 2016-17 for IAS Prelims: Demonetisation To Deify or Demonize Part 4

Feb 22, 2017 12:26 IST

    Economic Survey on demonetisation part 4Demonetisation was aimed at signalling a regime change, emphasising the government’s determination to penalise illicit activities and the associated wealth.

    Economic Survey 2016-17 for IAS Prelims: Demonetisation To Deify or Demonize Part 3

    According to the survey via demonetisation government announced a historic measure, with profound implications for the economy. The two largest denomination notes, Rs 500 and Rs 1000, were “demonetized” with immediate effect, ceasing to be legal tender except for a few specified purposes.

    ECONOMIC SURVEY 2016-17 IMPORTANT QUESTIONS

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

    1. The most important way to view demonetisation is as a tax administration measure. Consider the following benefits of demonetisation on tax structure:

    1) Black money Would have to be declared as unaccounted wealth and pay taxes at a penalty rate;
    2) Demonetisation will channel savings into the formal financial system.
    3) But the RBI’s net worth will decrease.

    Which of the above statements is correct?

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

    Answer: a

    Explanation:

    The most important way to view demonetisation is as a tax administration measure, one designed to tax holdings of black money. Those with black money faced three difficult choices. They could declare their unaccounted wealth and pay taxes at a penalty rate; continue to hide it, not converting their old notes and thereby suffering a tax rate of 100 percent; or launder their black money, paying a cost for converting the money into white.

    Demonetisation could also aid tax administration in another way, by shifting transactions out of the cash economy and into the formal payments system. With large denominations eliminated, households and firms have begun to shift from cash to electronic payment technologies.
    In the longer-term, if demonetisation is successful, it will reduce the equilibrium cash-GDP and cash deposits ratio in the economy. This will increase financial savings which could have a positive impact on long-run growth.

    Union Budget 2017 Questions for IAS Exam

    2. Demonetisation has affected a transfer of wealth from holders of illicit black money to the public sector and the taxes collected on money declared under disclosure scheme. Consider the following statements regarding the Pradhan Mantri Garib Kalyan Yojana (PMGKY):

    1) Under the Pradhan Mantri Garib Kalyan Yojana, black money can be deposited by paying a tax of 50% on the unaccounted income.
    2) The declarant must make a mandatory deposit of 25% of undisclosed income in the zero-interest Pradhan Mantri Garib Kalyan Deposit Scheme.
    3) There is an unlimited lock-in period on the deposit of unaccounted income.

    Which of the above statements is correct?

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

    Answer: c

    Explanation:

    Under the Pradhan Mantri Garib Kalyan Yojana, the black money can be deposited by paying a tax of 50%. Besides, the declarant must make a mandatory deposit of 25% of undisclosed income in the zero-interest Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 with a lock-in period of 4 years. With this amount, the government will be making investments in rural infrastructure. This is a very good measure the government has adopted to unearth the black money which people have.

    3. One intermediate objective of demonetisation is to create a less-cash or cash-lite economy. Consider the following steps taken by the government in this regard:

    1) BHIM (Bharat Interface For Money) app is based on the new Unified Payments Interface (UPI) to make simple and quick payments.
    2) Aadhaar Merchant Pay, aimed at people who do not have a bank account.
    3) Aadhaar Merchant Pay enables anyone with only an Aadhaar number to make a merchant payment using his biometric identification.

    Which of the above statements is correct?

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

    Answer: b

    Explanation:

    In the wake of the demonetisation, the government has taken a number of steps to facilitate and incentivize the move to a digital economy. These include:

    The launch of the BHIM (Bharat Interface For Money) app for smartphones. This is based on the new Unified Payments Interface (UPI) which has created interoperability of digital transactions. The 250 million digital-haves can use their smartphone to make simple and quick payments.10

    The launch of Aadhaar Merchant Pay, aimed at the 350 million who do not have phones. This enables anyone with just an Aadhaar number and a bank account to make a merchant payment using his biometric identification. Aadhar Merchant Pay will soon be integrated into BHIM and the necessary POS devices will soon be rolled out.

    Reductions in fees (Merchant Discount Rate) paid on digital transactions and transactions that use the UPI. There have also been relaxations of limits on the use of payment wallets. Tax benefits have also been provided for to incentivize digital transactions.

    Economic Survey 2016-17 for IAS Prelims: The Economic Vision for Precocious Cleavage India Part 2

    4. The Survey emphasised that success of digitalisation would depend considerably on efficient banking facilities and advised bank to:

    a. To create a separate banking software for digital payments.
    b. To facilitate the working of BHIM APP.
    c. To facilitate not thwart interoperability.
    d. All of the above.

    Answer: c

    Explanation:

    The Survey emphasised that success of digitalisation would depend considerably on interoperability of the payments system, and advised banks to facilitate and "not thwart" inter-operability. The success of digitalisation will depend considerably on the inter-operability of the payments system.

    The Unified Payments Interface (UPI) created by National Payments Corporation of India (NPCI) is the technology platform that will be the basis for ensuring interoperability but to ensure this, individual banks should facilitate not thwart interoperability.

    In a bid to curb corruption, the government has been pushing for greater adoption of digital payment mechanisms like debit/credit cards and mobile wallets in the country. Estimates suggest that cash accounts for about 78 percent of all consumer payments.

    By facilitating interoperability (between payment systems), it will unleash the power of mobile phones in achieving digitalisation of payments and financial inclusion, and making the 'M' an integral part of the government's flagship 'Jan Dhan, Aadhaar, Mobile' (JAM) initiative.

    5. Demonetisation could have a particularly profound impact on the real estate sector. Which of the following impacts are true?

    1) Prices could fall as investing undeclared income in real estate becomes more difficult.
    2) Tax component could rise, especially if GST imposed on real estate.

    Which of the above statements is correct?

    a. Both 1 and 2
    b. Only 1
    c. Only 2
    d. Neither 1 nor 2

    Answer: b

    Explanation:

    Demonetisation could have a particularly profound impact on the real estate sector. In the immediate impact, the prices declined, as wealth fell while cash shortages impeded transactions. Moreover in the long run too, prices could fall further as investing undeclared income in real estate becomes more difficult; but tax component could rise, especially if GST imposed on real estate.

    In the past, much of the black money accumulated was ultimately used to evade taxes on property sales. To the extent that black money is reduced and financial transactions increasingly take place through electronic means, this type of tax evasion will also diminish.

    An equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class, and facilitate labour mobility across India currently impeded by high and unaffordable rents.

    Current Issues and Events

    Title:  Economic Survey 2016-17 for IAS Prelims: Demonetisation To Deify or Demonize Part 4

    URL: Economic Survey Questions for IAS Prelims

    Tags: IAS Questions, IAS Prelims, Economic Survey Questions, Economic Survey 2016-17, Indian Economy

    Summary: According to the economic survey 2017 86 percent of the cash in circulation was thereby rendered invalid due to demonetisation. Hence, we provide Economic Survey 2017 questions on demonetisation for IAS Prelims 2017.

    Author: Jyoti Sharma

    Meta Title: Economic Survey Questions for IAS Prelims

    Meta Keywords: current affairs, IAS Questions, Economic Survey Questions, Budget Questions, Indian Economy

    Meta Description: We provide economic survey 2017 questions for IAS Exam. Read the economic survey 2017 Quiz for IAS Prelims 2017. Read Economic Survey on demonetisation here.

    BODY:

     

    Demonetisation was aimed at signalling a regime change, emphasising the government’s determination to penalise illicit activities and the associated wealth.

    According to the survey via demonetisation government announced a historic measure, with profound implications for the economy. The two largest denomination notes, Rs 500 and Rs 1000, were “demonetized” with immediate effect, ceasing to be legal tender except for a few specified purposes. The Economic Survey of India is an annual document of the Ministry of Finance, Government of India.

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

    1.    The most important way to view demonetisation is as a tax administration measure. Consider the following benefits of demonetisation on tax structure:

    1)    Black money Would have to be declared as unaccounted wealth and pay taxes at a penalty rate;

    2)    Demonetisation will channel savings into the formal financial system.

    3)    But the RBI’s net worth will decrease.

    Which of the above statements is correct?

    a.    1 and 2

    b.    2 and 3

    c.    1 and 3

    d.    1, 2 and 3

    Answer: a

    Explanation:

    The most important way to view demonetisation is as a tax administration measure, one designed to tax holdings of black money. Those with black money faced three difficult choices. They could declare their unaccounted wealth and pay taxes at a penalty rate; continue to hide it, not converting their old notes and thereby suffering a tax rate of 100 percent; or launder their black money, paying a cost for converting the money into white.

    Demonetisation could also aid tax administration in another way, by shifting transactions out of the cash economy and into the formal payments system. With large denominations eliminated, households and firms have begun to shift from cash to electronic payment technologies.

    In the longer-term, if demonetisation is successful, it will reduce the equilibrium cash-GDP and cash deposits ratio in the economy. This will increase financial savings which could have a positive impact on long-run growth.

    2.    Demonetisation has affected a transfer of wealth from holders of illicit black money to the public sector and the taxes collected on money declared under disclosure scheme. Consider the following statements regarding the Pradhan Mantri Garib Kalyan Yojana (PMGKY):

    1)    Under the Pradhan Mantri Garib Kalyan Yojana, black money can be deposited by paying a tax of 50% on the unaccounted income.

    2)    The declarant must make a mandatory deposit of 25% of undisclosed income in the zero-interest Pradhan Mantri Garib Kalyan Deposit Scheme.

    3)     There is an unlimited lock-in period on the deposit of unaccounted income.

    Which of the above statements is correct?

    a.    1 and 3

    b.    2 and 3

    c.    1 and 2

    d.    1, 2 and 3

    Answer: c

    Explanation:

    Under the Pradhan Mantri Garib Kalyan Yojana, the black money can be deposited by paying a tax of 50%. Besides, the declarant must make a mandatory deposit of 25% of undisclosed income in the zero-interest Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 with a lock-in period of 4 years. With this amount, the government will be making investments in rural infrastructure. This is a very good measure the government has adopted to unearth the black money which people have.

    3.    One intermediate objective of demonetisation is to create a less-cash or cash-lite economy. Consider the following steps taken by the government in this regard:

    1)    BHIM (Bharat Interface For Money) app is based on the new Unified Payments Interface (UPI) to make simple and quick payments.

    2)    Aadhaar Merchant Pay, aimed at people who do not have a bank account.

    3)    Aadhaar Merchant Pay enables anyone with only an Aadhaar number to make a merchant payment using his biometric identification.

    Which of the above statements is correct?

    a.    1 and 2

    b.    Only 1

    c.    1 and 2

    d.    1, 2 and 3

    Answer: b

    Explanation:

    In the wake of the demonetisation, the government has taken a number of steps to facilitate and incentivize the move to a digital economy. These include:

    The launch of the BHIM (Bharat Interface For Money) app for smartphones. This is based on the new Unified Payments Interface (UPI) which has created interoperability of digital transactions. The 250 million digital-haves can use their smartphone to make simple and quick payments.10

    The launch of Aadhaar Merchant Pay, aimed at the 350 million who do not have phones. This enables anyone with just an Aadhaar number and a bank account to make a merchant payment using his biometric identification. Aadhar Merchant Pay will soon be integrated into BHIM and the necessary POS devices will soon be rolled out.

    Reductions in fees (Merchant Discount Rate) paid on digital transactions and transactions that use the UPI. There have also been relaxations of limits on the use of payment wallets. Tax benefits have also been provided for to incentivize digital transactions.

    4.    The Survey emphasised that success of digitalisation would depend considerably on efficient banking facilities and advised bank to:

    a.    To create a separate banking software for digital payments.

    b.    To facilitate the working of BHIM APP.

    c.    To facilitate not thwart interoperability.

    d.    All of the above.

    Answer: c

    Explanation:

    The Survey emphasised that success of digitalisation would depend considerably on interoperability of the payments system, and advised banks to facilitate and "not thwart" inter-operability. The success of digitalisation will depend considerably on the inter-operability of the payments system.

    The Unified Payments Interface (UPI) created by National Payments Corporation of India (NPCI) is the technology platform that will be the basis for ensuring interoperability but to ensure this, individual banks should facilitate not thwart interoperability.

    In a bid to curb corruption, the government has been pushing for greater adoption of digital payment mechanisms like debit/credit cards and mobile wallets in the country. Estimates suggest that cash accounts for about 78 percent of all consumer payments.

     

    By facilitating interoperability (between payment systems), it will unleash the power of mobile phones in achieving digitalisation of payments and financial inclusion, and making the 'M' an integral part of the government's flagship 'Jan Dhan, Aadhaar, Mobile' (JAM) initiative.

    5.    Demonetisation could have a particularly profound impact on the real estate sector. Which of the following impacts are true?

    1)    Prices could fall as investing undeclared income in real estate becomes more difficult.

    2)    Tax component could rise, especially if GST imposed on real estate.

    Which of the above statements is correct?

    a.    Both 1 and 2

    b.    Only 1

    c.    Only 2

    d.    Neither 1 nor 2

    Answer: b

    Explanation:

    Demonetisation could have a particularly profound impact on the real estate sector. In the immediate impact, the prices declined, as wealth fell while cash shortages impeded transactions. Moreover in the long run too, prices could fall further as investing undeclared income in real estate becomes more difficult; but tax component could rise, especially if GST imposed on real estate.

    In the past, much of the black money accumulated was ultimately used to evade taxes on property sales. To the extent that black money is reduced and financial transactions increasingly take place through electronic means, this type of tax evasion will also diminish.

    An equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class, and facilitate labour mobility across India currently impeded by high and unaffordable rents.

     

     

     

     

     

     

     

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