Economic Survey 2015-16 MCQ Series Q5

Question:

If the historical CO2 emissions are considered i.e. from 1970 to 2014, the top three emitters in the correct descending order are

  1. EU, USA, China
  2. USA, EU, China
  3. EU, China, USA
  4. USA, China, EU

The correct answer to yesterday’s question is C.

SSM is a tool that allows developing countries to raise tariffs temporarily to deal with surges in agricultural imports or price falls. Developing and developed nations are at loggerheads over the ‘trigger factor’ that allows a developing country to raise tariff on imports and the level of tariff that can be imposed.

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Economic Survey 2015-16 MCQ series Q4

Question:

The term Special Safeguard Mechanism (SSM) is often used in the context of the World Trade Organization (WTO). What do you mean by SSM?

  1. It is a tool that allows the developed as well as the developing countries to lower the tariffs temporarily to deal with surges in agricultural imports
  2. It is a tool that allows the developed as well as the developing countries to lower the tariffs temporarily to deal with surges in all kinds of imports
  3. It is a tool that allows the developing countries to increase the tariffs temporarily to deal with surges in agricultural imports
  4. It is a tool that allows the developing countries to lower the tariffs temporarily to deal with surges in all kinds of imports

 

The correct answer for yesterday’s question is A i.e. 1 only.

The explanation is as follows:

During the current financial year (April-January), India’s total export was $217.7 billion while total import during the same period was $324.5 billion. In 2015-16, both imports and exports have been on declining trend mainly due to global slowdown. The trade deficit stands at $106.8 billion.
The CAD is on a decreasing trend, mainly due to the fall in global crude oil prices.

Economic Survey 2015-16 MCQ series- Q3

Question 3:

Consider the following statements regarding India’s merchandize trade:
1. In 2015-16, both India’s exports as well as imports have been on a declining trend on a year on year basis
2. In 2015-16, India’s exports have fallen while imports have shown a strong growth on a year on year basis
3. India’s Current Account Deficit (CAD) is on an increasing trend in 2015-16 on a year to year basis
Which of the above statements are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 or 2
The correct answer for yesterday’s question is B i.e. 2 and 3 only (Incorrect statements were asked)
The revenue deficit as a percentage of GDP has been consistently falling since 2012-13 from 3.7% in 2012-13 to 3.2% in 2013-14 to 2.9% in 2014-15 to 2.8% in 2015-16
Fiscal deficit is also consistently falling from 4.9% in 2012-13 to 4.5% in 2013-14 to 4.1% in 2014-15 to 3.9% in 2015-16
Primary deficit is also consistently falling from 1.8% in 2012-13 to 1.1% in 2013-14 to 0.8% in 2014-15 to 0.7% in 2015-16
The figures for the year 2015-16 are very important. Memorize them

Economic Survey MCQ Series- Question 2

 

Question 2-

Consider the following statements regarding the various deficits in India:

  1. The Revenue deficit as percentage of GDP has been consistently falling since 2012-13
  2. The Fiscal deficit as percentage of GDP shows no clear trend since 2012-13
  3. The Primary deficit as a percentage of GDP has increased since 2012-13

Which of the above statements are incorrect?

  1. 1 only
  2. 2 and 3 only
  3. 2 only
  4. All the given statements are correct

The answer to yesterday’s question is as follows:

The correct answer is option 2. The explanation is as follows: According to the Economic Survey 2015-16, there are several reasons for the low tax to gdp ratio namely- High poverty and hence lower purchasing power, under tax compliance and under reporting of income, late imposition of service tax and that too only on a few sectors, corporate profits have been hit because of a weak demand, etc    The Survey also prescribes a solution for the same and that involves “boosting the demand” in the domestic economy so that the tax collection, both direct and indirect, can go up in the medium and long term.”

Economic Survey MCQ series- Question 1

We have prepared quality and conceptual MCQs from the latest Economic Survey 2015-16 . These would be highly useful in the preparation of RBI grade B examination.

We would be posting 1 question every day and the correct answer along with the detailed explanation would be posted the next day. Happy learning!

Question-

India has a Tax to GDP ratio of 16.6%. This is low as compared to other comparable economies because

  1. Indian tax collection system is inefficient and therefore the net tax collection falls
  2. There is lack of tax compliance and the tax net is also narrow
  3. The tax base is very wide but the tax rate has been kept quite low
  4. None of the above statements explain India’s position

Observations from the Economic Survey 2015-16

Phase II

Economic and Social Issues

Topic- Monetary and Fiscal Policy

IMPORTANT OBSERVATIONS FROM THE ECONOMIC SURVEY OF INDIA REGARDING INDIA’S FISCAL AND  MONETARY POLICY

  • India is very far from being a full tax-paying democracy. The survey notes that only 5.5% of earning people in India pay tax while only 15.5% of the Net National Income is reported to the tax authorities.
  • Further, only 4% of India’s voters are tax payers. Ideally, this number should be close to 23%.
  • Due to under-tax compliance and narrow tax net, the tax-to-GDP ratio of the country stands at 16.6%.
  • This is much below the developed countries for example; the tax-GDP ratio in OECD countries is around 34%. We note here that the highest tax-GDP ratio in the world is of Denmark.

 

  • There are several reasons for low-tax-GDP ratio.
  • Firstly, as mentioned above, India has a low population of tax payers. Low per capita income, low average income and high poverty are key reasons for this.
  • Secondly, those who pay tax either pay less due to exemptions or under-report the income. One example is unorganized sector and MSMEs. MSMEs have strong profitability but government is generally not able to capture their earnings in tax revenues due to variety of exemptions, compliance issues etc.
  • Thirdly, service tax in India was imposed late and imposed only on few sectors. Its share has been traditionally low in gross tax revenues of the government. Currently, services comprise about 60% ofthe GDP, yet the service tax collected is 15% of the Gross Tax Revenue
  • Fourthly, the tax collections are always sensitive to growth trends. The corporate taxes are hit by recession, decreasing domestic demand etc.
  • There are several ways to increase tax-GDP ratio.
  • These include raising the taxes, lowering the tax exemption slabs, imposition of new taxes or cesses or surcharges, boosting the demand etc.
  • Out of these, the easiest method in the hand of the government is to hike taxes.
  • The survey recommendations for increasing tax-GDP ratio are:
  • Don’t go with a populist measure of raising tax exemptions limits
  • Try to impose some new small taxes or cesses
  • Stick on fiscal consolidation path while taking measure to sustain growth

 

TRENDS IN GOVERNMENT SPENDING

  • India is behind many other economies in Government spending. India’s government spending is lowest among BRICS, and lower than the OECD and emerging market economies
  • In this context, the survey notes that:
  • To boost public spending, government needs more revenues in the form of taxes. That can be done by increasing tax-GDP ratio.
  • Indian elite should pay more taxes to provide for greater spending. There should be more tax imposed on those who are rich and better placed regardless of whether their income comes from industry, services, real estate or even agriculture. The Government should phase-out of the tax exemption raj that benefited the richer private sector.
  • The survey also recommends removing tax incentives for small savings, as mostly the rich benefit from them; imposing tax on gold since it is hoarded by the rich; imposing wider property tax in the context of smart cities.

 

TRENDS IN SUBSIDIES EXPENDITURE

  • Subsidy is one of the major non-plan expenditures that results in Centre’s increased fiscal deficit.
  • In 2013-14, India’s bill for major subsidies was Rs. 2,.47 Lakh crore, which stood at 2.26 per cent of GDP.
  • In 2015-16, this bill stands at Rs. 2.44 Lakh Crore standing at 1.7% of GDP
  • The government’s challenge is two pronged. On one hand, the current government’s intention is to decrease the percentage of the GDP spend on subsidies to 1.6% of GDP by 2017-18.
  • On the other hand, the subsidy leakage has to be curbed by cutting out the loopholes and middlemen using technology.

TRENDS IN GOVERNMENT DEBT

  • The debt of the central government is of two types viz. internal and external.
  • Internal debt is owed to domestic lenders while external debt is owed to external / foreign lenders. Internal debt includes market borrowings in the foam of T-Bills, Government bonds, small savings, provident funds, etc etc.
  • Internal debt is that part of the total debt that is owed to lenders within the country.
  • External debts are Rupees/ Foreign currency debts from foreign countries, Financial institutions such as WB, ADB etc. External debt also includes the NRI deposits.
  • Most of India’s public debt (97%) is internal debt.
  • This figure is particularly important because having more fraction of external debt is dangerous to the sovereignty of the nation.
  • Further, we see that the external debt is on declining trend which is good.