National Income & Gross Domestic Product (Part

Total Questions: 45

31. The main reason for low growth rate in India, inspite of high rate of saving and capital formation is : [U.P.P.C.S. (Pre) 1995]

(a) high birth rate
(b) low level of foreign aid
(c) low capital-output ratio
(d) high capital-output ratio

Correct Answer: (d) high capital-output ratio

Solution:Capital required for one unit of production is known as capital- output ratio. The lower the capital-output ratio, higher the productivity of capital and the economic growth rate of that country. The underdeveloped and developing economies have high capital-output ratio and that is why their economic growth rate has been low. One of the most important reason for India not attaining the expected growth rate is its high capital-output ratio.

32. Despite being a high saving economy, capital formation may not result in significant increase in output due to : [U.P.S.C (Pre) 2018]

(a) weak administrative machinery
(b) illiteracy
(c) high population density
(d) high capital-output ratio

Correct Answer: (d) high capital-output ratio

Solution:Capital-output ratio (COR) is the amount of capital needed to produce one unit of output. COR explains the relationship between level of investment (or saving) and the corresponding economic growth. If COR is high, despite high savings and generating enough capital for investment, output may not grow significantly. It can be represented by the simple economic equation G x C = S.

Here, G is economic growth (output), C is capital -output ratio and S is savings.

Therefore, it is clear that despite being a high saving economy, Capital formation may not result in significant increase in output due to high COR. High COR may be a result of poor technology or poor management.

33. Which of the following are the main cause of slow rate of growth of Per Capita Income in India-- [U.P.S.C (Pre) 1993]

1 . High capital-output ratio

2 . High rate of growth of population

3 . High rate of capital formation

4 . High level of fiscal deficits

Select the correct answer from the codes given below :

Codes :

(a) 1, 2, 3 and 4
(b) 2, 3 and 4
(c) 1 and 4
(d) 1 and 2

Correct Answer: (a) 1, 2, 3 and 4

Solution:There are two prominent reasons for the slow rate of growth of Per Capita Income (PCI) in Indian Economy: high capital- output ratio and high rate of population growth. Due to the speedy growth in population, the PCI does not increases in that proportion in which the Gross Domestic Product is increasing. Similarly, due to high capital-output ratio (COR), per unit production cost increases, resulting in slow growth of GDP and further low growth in PCI.

34. Consider the following statements about the reasons behind the low level of Per Capita Income in Uttar Pradesh : [U.P.P.C.S. (Mains) 2005]

1. Fast growing population

2. Lack of entrepreneurship

3. Inadequate infrastructural facilities

4. Modernization of agriculture

Of these statements, which of the following statement group is correct ?

(a) 1, 2 and 4
(b) 1, 2 and 3
(c) 2, 3 and 4
(d) 1, 3 and 4

Correct Answer: (b) 1, 2 and 3

Solution:The prominent reasons for the low Per Capita Income in Uttar Pradesh are mentioned in Statement 1, 2 and 3. Modernization of agriculture is not a reason for low Per Capita Income. Thus, option (b) is the correct answer. Modern agricultural practices, such as mechanization, use of fertilizers, and improved irrigation, lead to higher yields and reduced labor requirements per unit of output. As agriculture becomes more efficient, workers are able to produce more with less effort, leading to higher wages and incomes.
Modernized agriculture can also lead to a shift of labor from agriculture to other sectors, such as manufacturing and services, further boosting economic growth. Higher agricultural productivity leads to surpluses that can be sold, creating additional income and stimulating economic activity. Modernization can also improve food security and access to healthier diets, which further contribute to economic development.

35. Economic growth in country X will necessarily have to occur if- [U.P.S.C (Pre) 2013]

(a) there is technical progress in the world economy
(b) there is population growth in X
(c) there is capital formation in X
(d) the volume of trade grows in the world economy

Correct Answer: (c) there is capital formation in X

Solution:Economists believe that the capital formation is the most important factor for the economic growth. According to ate of erstwhile Planning Commission of India, "The real key of high productivity and income and raising employment level is the growing rate of capital formation". Capital formation takes place when a country does not spend all its current income in consumption but saves a part of it and uses it for investment for increasing further production. This act of saving and investment is described as capital formation.

36. Which factor can be highly supportive in achieving economic rate of 8% or more in the near future in India ? [R.A.S./R.T.S. (Pre) (Re. Exam.) 2013]

(a) Promulgation of GST from April 1, 2016 without further delay.
(b) Fast skill development of labour force in the country.
(c) Implenentation of all stalled productive projects.
(d) Increasing Ease of Doing Business at a rapid rate.

Correct Answer: (c) Implenentation of all stalled productive projects.

Solution:The execution of stalled productive projects can be proved to be most helpful in attaining the growth rate of 8% or more in near future in India. However other factors like implementation of Goods and Services Tax, skill development of labour force and easing the process of doing business can also result in higher growth in long-term. Stalled projects represent a significant amount of capital that is not being used productively. Bringing these projects online will inject fresh capital into the economy, stimulating demand and creating jobs. Many stalled projects are infrastructure-related, and completing them will improve the country's infrastructure, which is essential for economic growth.
Completed projects will lead to increased production, trade, and consumption, all of which contribute to higher GDP growth. Construction and operation of these projects will generate a large number of jobs, helping to reduce unemployment and improve living standards. Improved infrastructure and productive capacity will make India more competitive in the global market, attracting foreign investment and exports.

37. Which of the following reasons are mainly responsible for slow growth of Real Per Capita Income in India - [U.P.P.C.S. (Pre) 2001]

1. Rapid increase in population

2. High increase in prices

3. Slow growth in agriculture and industrial sectors

4. unavailability of foreign exchange

Find the correct answer using following codes-

Codes :

(a) 1 and 2 only
(b) 1, 2 and 3 only
(c) 1 and 4 only
(d) All of the above

Correct Answer: (b) 1, 2 and 3 only

Solution:All the factors mentioned in the above question were responsible for slow growth in Real Per Capita Income of India during the question period. But at present there is sufficient availability of foreign exchange in India. Thus, in the current scenario option (b) will be the correct answer. Per Capita Income of India is a measure of the average income earned by an individual in India within one year. The Per Capita Income of India is calculated by dividing the National Income of India by its total population. This represents the average annual income and not a measure of an individual's wealth as a whole. Per Capita Income of India is an important measure of its development. It is an indicator of the standard of living in the country. Per Capita Income of India forms the basis of policymaking in various sectors of the economy.
Per Capita Income is determined by dividing National Income by the total population of India. The National Income of India is sum total of the monetary value of goods and services that are produced in India within a period of one year.

38. In the 2001-2010 decade, the highest rate of gross domestic savings was achieved in the year - [U.P.P.C.S. (Mains) 2009]

(a) 2005-06
(b) 2006- 07
(c) 2007- 08
(d) 2008- 09

Solution:As per the Economic Survey 2023-23, in the 2001-10 decade, the highest rate of gross domestic savings was achieved in the year 2007-08 (37.8% of GDP at current market prices ), while in the 2010-2020 period, the maximum rates of gross domestic savings are achieved in the year 2010-11 (36.9%) and 2011-12 (34.6%). As per the RBI's Handbook of Statistics on the Indian Economy, 2022-23, in the year 2020-21 and 2021-22, the gross domestic saving is at 28.83% and 30.15% respectively.

39. The average rate of domestic saving (gross) for the Indian Economy is currently estimated to be in the range of : [U.P.S.C (Pre) 1997]

(a) 15 to 20 precent
(b) 20 to 25 percent
(c) 25 to 30 percent
(d) 30 to 35 percent

Correct Answer: (b) 20 to 25 percent

Solution:The rate of gross domestic saving (as percent of GDP at current market prices) of the Indian Economy was 23.9% in the year 1995-96 and 22.8% in the year 1996-97. Thus in that period the average rate of gross domestic saving was in the range of 20-25%.

The rate of gross domestic savings as per the RBI's Handbook of Statistics on the Indian Economy, 2022-23, in recent years are as follows :

2017-18	2018-19	2019-20	2020-21	2021-22
32.07%	31.75%	29.55%	28.83%	30.15%

40. In year 2012-13, India's group domestic saving rate was- [Chhattishgarh P.C.S (Pre) 2014]

(a) 30.1 percent of GDP
(b) 25.8 percent of GDP
(c) 22.3 percent of GDP
(d) 34.6 percent of GDP
(e) None of these

Correct Answer: (e) None of these

Solution:As per the Economic Survey 2022-23, gross domestic saving rate (as percent of GDP at current market prices ) was at 33.9% in the year 2012-13. GDS represents the portion of a country's GDP that is saved rather than consumed. It's calculated by subtracting total consumption from the GDP. India's GDS rate rose to 29.3% in 2023, indicating an upward trend from 2022. India's GDS rate is higher than the global average and also surpasses that of countries like the US and Japan.
While overall savings may be stable, household net savings have been declining, with a sharp drop in household financial savings and a rise in financial liabilities. Shifting consumption patterns, evolving investment behaviors, and increased reliance on physical assets are contributing to the decline in household savings. Gross domestic savings are a crucial factor in a country's economic growth, as they provide funds for investment and development.

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National Income & Gross Domestic Product (Part – II)